UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the quarterly period ended ~~March 31,~~June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the transition period from to .

Commission file number 001-33099

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

Delaware

32-0174431

(State or Other Jurisdiction of

Incorporation or Organization)

~~(I.R.S.~~ (I.R.S. Employer Identification No.)

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(Zip Code)

(212) 810-5300

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes		X		No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes		X		No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or, a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer X	Accelerated filer	Non-accelerated filer
Smaller reporting company		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes		No			X

As of ~~April 30,~~July 31, 2013, there were ~~168,703,604~~167,923,814 shares of the registrant’s common stock outstanding.

BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION


		Page

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition		1

	Condensed Consolidated Statements of Income		2

	Condensed Consolidated Statements of Comprehensive Income		3

	Condensed Consolidated Statements of Changes in Equity		4

	Condensed Consolidated Statements of Cash Flows		6

	Notes to Condensed Consolidated Financial Statements		87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4044

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		6982

Item 4.	Controls and Procedures		7285

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings	7386

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7386

Item 6.	Exhibits	7487

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(in millions, except share data)

(unaudited)


	March 31, 2013			December 31, 2012			June 30, 2013			December 31, 2012
Assets
Cash and cash equivalents		$ 3,942			$ 4,606			$ 3,668			$ 4,606
Accounts receivable		2,618			2,250			2,249			2,250
Investments		1,711			1,750			1,773			1,750
Assets of consolidated variable interest entities:
Cash and cash equivalents		290			297			125			297
Bank loans and other investments		2,514			2,264
Bank loans, other investments and other assets								2,160			2,264
Separate account assets		137,302			134,768			132,846			134,768
Separate account collateral held under securities lending agreements		20,939			23,021			19,426			23,021
Property and equipment (net of accumulated depreciation of $593 and $572 at March 31, 2013 and December 31, 2012, respectively)		529			557
Intangible assets (net of accumulated amortization of $939 and $899 at March 31, 2013 and December 31, 2012, respectively)		17,362			17,402
Property and equipment (net of accumulated depreciation of $614 and $572 at June 30, 2013 and December 31, 2012, respectively)								524			557
Intangible assets (net of accumulated amortization of $979 and $899 at June 30, 2013 and December 31, 2012, respectively)								17,322			17,402
Goodwill		12,904			12,910			12,899			12,910
Other assets		627			626			753			626

Total assets		$200,738			$200,451			$193,745			$200,451

Liabilities
Accrued compensation and benefits		$ 602			$ 1,547			$ 948			$ 1,547
Accounts payable and accrued liabilities		1,657			1,055			1,271			1,055
Short-term borrowings		-			100			-			100
Liabilities of consolidated variable interest entities:
Borrowings		2,332			2,402			2,145			2,402
Other liabilities		275			103			93			103
Long-term borrowings		5,687			5,687			4,938			5,687
Separate account liabilities		137,302			134,768			132,846			134,768
Separate account collateral liabilities under securities lending agreements		20,939			23,021			19,426			23,021	��
Deferred income tax liabilities		5,379			5,293			5,318			5,293
Other liabilities		898			858			935			858

Total liabilities		175,071			174,834			167,920			174,834


Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)
Temporary equity
Redeemable non-controlling interests		36			32
Redeemable noncontrolling interests								70			32
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		2			2			2			2
Shares authorized: 500,000,000 at March 31, 2013 and December 31, 2012;
Shares issued: 171,252,185 at March 31, 2013 and December 31, 2012;
Shares outstanding: 168,967,457 and 168,875,304 at March 31, 2013 and December 31, 2012, respectively
Preferred stock (Note 15)		-			-
Shares authorized: 500,000,000 at June 30, 2013 and December 31, 2012;
Shares issued: 171,252,185 at June 30, 2013 and December 31, 2012;
Shares outstanding: 168,150,018 and 168,875,304 at June 30, 2013 and December 31, 2012, respectively
Preferred stock (Note 16)								-			-
Additional paid-in capital		19,210			19,419			19,302			19,419
Retained earnings		6,767			6,444			7,210			6,444
Appropriated retained earnings		55			29			23			29
Accumulated other comprehensive loss		(166	)		(59	)		(198	)		(59	)
Treasury stock, common, at cost (2,284,728 and 2,376,881 shares held at March 31, 2013 and December 31, 2012, respectively)		(523	)		(432	)
Treasury stock, common, at cost (3,102,167 and 2,376,881 shares held at June 30, 2013 and December 31, 2012, respectively)								(750	)		(432	)

Total BlackRock, Inc. stockholders’ equity		25,345			25,403			25,589			25,403
Nonredeemable non-controlling interests		144			155
Nonredeemable non-controlling interests of consolidated variable interest entities		142			27
Nonredeemable noncontrolling interests								142			155
Nonredeemable noncontrolling interests of consolidated variable interest entities								24			27

Total permanent equity		25,631			25,585			25,755			25,585

Total liabilities, temporary equity and permanent equity		$200,738			$200,451			$193,745			$200,451

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Income

(in millions, except per share data)

(unaudited)


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012		2013		2012
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties		$1,455		$1,314		$1,470		$1,272		$2,925		$2,586
Other third parties		674		663		707		718		1,381		1,381

Total investment advisory, administration fees and securities lending revenue		2,129		1,977		2,177		1,990		4,306		3,967
Investment advisory performance fees		108		80		89		41		197		121
BlackRock Solutions and advisory		126		123		138		131		264		254
Distribution fees		17		19		18		20		35		39
Other revenue		69		50		60		47		129		97

Total revenue		2,449		2,249		2,482		2,229		4,931		4,478
Expenses
Employee compensation and benefits		905		825		864		786		1,769		1,611
Distribution and servicing costs		91		95		90		93		181		188
Amortization of deferred sales commissions		12		16		12		14		24		30
Direct fund expenses		161		152		162		144		323		296
General and administration		331		307		465		324		796		631
Amortization of intangible assets		40		39		40		39		80		78

Total expenses		1,540		1,434		1,633		1,400		3,173		2,834

Operating income		909		815		849		829		1,758		1,644
Non-operating income (expense)
Net gain (loss) on investments		62		75		141		(7)		203		68
Net gain (loss) on consolidated variable interest entities		27		(12)		(23)		11		4		(1)
Interest and dividend income		6		9		4		8		10		17
Interest expense		(54)		(49)		(53)		(52)		(107)		(101)

Total non-operating income (expense)		41		23		69		(40)		110		(17)

Income before income taxes		950		838		918		789		1,868		1,627
Income tax expense		284		263		212		229		496		492

Net income		666		575		706		560		1,372		1,135
Less:
Net income (loss) attributable to redeemable non-controlling interests		-		1
Net income (loss) attributable to nonredeemable non-controlling interests		34		2
Net income (loss) attributable to redeemable noncontrolling interests						(1)		3		(1)		4
Net income (loss) attributable to nonredeemable noncontrolling interests						(22)		3		12		5

Net income attributable to BlackRock, Inc.		$632		$572		$729		$554		$1,361		$1,126

Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic		$3.69		$3.19		$4.27		$3.13		$7.96		$6.32
Diluted		$3.62		$3.14		$4.19		$3.08		$7.81		$6.22
Cash dividends declared and paid per share		$1.68		$1.50		$1.68		$1.50		$3.36		$3.00
Weighted-average common shares outstanding:
Basic		171,301,800		179,022,840		170,648,731		177,010,239		170,973,462		178,016,539
Diluted		174,561,132		181,917,864		173,873,583		179,590,702		174,268,870		180,753,515

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012		2013		2012
Net income		$666		$575		$706		$560		$1,372		$1,135
Other comprehensive income:
Other comprehensive income (loss):
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax(1)		4		6		(21)		(4)		(17)		2
Less: reclassification adjustment included in net income(2)		3		1		(12)		(2)		(9)		(1)

Net change from available-for-sale investments, net of tax⁽¹⁾		1		5		(9)		(2)		(8)		3
Benefit plans, net		-		(1)
Benefit plans, net of tax⁽³⁾						-		-		-		(1)
Foreign currency translation adjustments		(108)		33		(23)		(34)		(131)		(1)

Other comprehensive income (loss)		(107)		37		(32)		(36)		(139)		1

Comprehensive income		559		612		674		524		1,233		1,136
Less: Comprehensive income (loss) attributable to non-controlling interests		34		3
Less: Comprehensive income (loss) attributable to noncontrolling interests						(23)		6		11		9

Comprehensive income attributable to BlackRock, Inc.		$525		$609		$697		$518		$1,222		$1,127

⁽¹⁾

The tax benefit (expense) ~~on unrealized holding gains (losses)~~ was $1$8 million and ~~($3)~~$2 million ~~during~~for the ~~quarters~~three months ended ~~March 31,~~June 30, 2013 and 2012, respectively, and $7 million and ($1) million for the six months ended June 30, 2013 and 2012, respectively.

⁽²⁾

The tax benefit (expense) was ($6) million and ($4) million for the three and six months ended June 30, 2013, respectively. The tax benefit (expense) was not material for the three and six months ended June 30, 2012.

⁽³⁾

The tax benefit (expense) for the six months ended June 30, 2012 was not material.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions)

(unaudited)


	Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Non-controlling Interests		Nonredeemable Non-controlling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity
																					Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity
December 31, 2012		$19,421		$6,444		$29		($59)		($432)		$25,403		$155		$27		$25,585		$32		$19,421		$6,444		$29		($59)		($432)		$25,403		$155		$27		$25,585		$32
Net income		-		632		-		-		-		632		7		27		666		-		-		1,361		-		-		-		1,361		8		4		1,373		(1)
Allocation of gains (losses) of consolidated collateralized loan obligations		-		-		26		-		-		26		-		(26)		-		-		-		-		3		-		-		3		-		(3)		-		-
Dividends paid		-		(309)		-		-		-		(309)		-		-		(309)		-		-		(595)		-		-		-		(595)		-		-		(595)		-
Stock-based compensation		127		-		-		-		-		127		-		-		127		-		231		-		-		-		-		231		-		-		231		-
Issuance of common shares related to employee stock transactions		(364)		-		-		-		370		6		-		-		6		-		(379)		-		-		-		397		18		-		-		18		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		(211)		(211)		-		-		(211)		-		-		-		-		-		(215)		(215)		-		-		(215)		-
Shares repurchased		-		-		-		-		(250)		(250)		-		-		(250)		-		-		-		-		-		(500)		(500)		-		-		(500)		-
Net tax benefit (shortfall) from stock-based compensation		28		-		-		-		-		28		-		-		28		-		31		-		-		-		-		31		-		-		31		-
Subscriptions (redemptions/distributions)-non-controlling interest holders		-		-		-		-		-		-		(18)		114		96		11
Subscriptions (redemptions/distributions)-noncontrolling interest holders																						-		-		(9)		-		-		(9)		(21)		130		100		75
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		-		-		(7)		-		-		-		-		-		-		-		(134)		(134)		(36)
Other comprehensive income (loss)		-		-		-		(107)		-		(107)		-		-		(107)		-		-		-		-		(139)		-		(139)		-		-		(139)		-

March 31, 2013		$19,212		$6,767		$55		($166)		($523)		$25,345		$144		$142		$25,631		$36
June 30, 2013																						$19,304		$7,210		$23		($198)		($750)		$25,589		$142		$24		$25,755		$70

⁽¹⁾	Amounts include $2 million of common stock at both ~~March 31,~~June 30, 2013 and December 31, 2012.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions)

(unaudited)


	Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Shares Held in Escrow		Treasury Stock Common		Total Stockholders’ Equity		Nonredeemable Non-controlling Interests		Nonredeemable Non-controlling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity
																							Additional Paid-in Capital⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Shares Held in Escrow		Treasury Stock Common		Total Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity
December 31, 2011		$20,276		$5,046		$72		($127)		($1)		($218)		$25,048		$184		$38		$25,270		$92		$20,276		$5,046		$72		($127)		($1)		($218)		$25,048		$184		$38		$25,270		$92
Net income		-		572		-		-		-		-		572		14		(12)		574		1		-		1,126		-		-		-		-		1,126		6		(1)		1,131		4
Allocation of losses of consolidated collateralized loan obligations		-		-		(15)		-		-		-		(15)		-		15		-		-		-		-		(2)		-		-		-		(2)		-		2		-		-
Dividends paid		-		(285)		-		-		-		-		(285)		-		-		(285)		-		-		(545)		-		-		-		-		(545)		-		-		(545)		-
Stock-based compensation		114		-		-		-		-		-		114		-		-		114		-		235		-		-		-		-		-		235		-		-		235		-
Merrill Lynch cash capital contribution		7		-		-		-		-		-		7		-		-		7		-		7		-		-		-		-		-		7		-		-		7		-
Issuance of common shares related to employee stock transactions		(335)		-		-		-		-		376		41		-		-		41		-		(351)		-		-		-		-		400		49		-		-		49		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		-		(137)		(137)		-		-		(137)		-��		-		-		-		-		-		(139)		(139)		-		-		(139)		-
Shares repurchased		-		-		-		-		-		(125)		(125)		-		-		(125)		-		(1,000)		-		-		-		-		(167)		(1,167)		-		-		(1,167)		-
Net tax benefit (shortfall) from stock-based compensation		46		-		-		-		-		-		46		-		-		46		-		59		-		-		-		-		-		59		-		-		59		-
Subscriptions(redemptions/distributions)-non-controlling interest holders		-		-		-		-		-		-		-		(12)		(5)		(17)		144
Subscriptions(redemptions/distributions)-noncontrolling interest holders																								-		-		-		-		-		-		-		(12)		(5)		(17)		188
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		(1)		-		(1)		(158)		-		-		-		-		-		-		-		-		-		-		(246)
Other comprehensive income (loss)		-		-		-		37		-		-		37		-		-		37		-		-		-		-		1		-		-		1		-		-		1		-

March 31, 2012		$20,108		$5,333		$57		($90)		($1)		($104)		$25,303		$185		$36		$25,524		$79
June 30, 2012																								$19,226		$5,627		$70		($126)		($1)		($124)		$24,672		$178		$34		$24,884		$38

⁽¹⁾	Amounts include $2 million and $1 million of common stock at ~~both March 31,~~June 30, 2012 and December 31, ~~2011.~~2011, respectively.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

~~Condensed Consolidated Statements of Cash Flows~~

~~(in millions)~~

~~(unaudited)~~

       Three Months Ended
March 31,
       2013            2012
Cash flows from operating activities

Net income
   $666       $575
Adjustments to reconcile net income to cash flows from operating activities:

Depreciation and amortization
   72       73
Amortization of deferred sales commissions
   12       16
Stock-based compensation
   127       114
Deferred income tax expense (benefit)
   93       65
Net (gains) losses on non-trading investments
   (21)       (39)
Purchases of investments within consolidated sponsored investment funds
   (18)       (53)
Proceeds from sales and maturities of investments within consolidated sponsored investment funds
   29       18
Assets and liabilities of consolidated VIEs:

Change in cash and cash equivalents
   7       (41)
Net (gains) losses within consolidated VIEs
   (27)       12
Net (purchases) proceeds within consolidated VIEs
   (41)       122
(Earnings) losses from equity method investees
   (50)       (45)
Distributions of earnings from equity method investees
   17       8
Changes in operating assets and liabilities:

Accounts receivable
   (376)       (344)
Deferred sales commissions
   (13)       (12)
Investments, trading
   51       (176)
Other assets
   17       27
Accrued compensation and benefits
   (947)       (853)
Accounts payable and accrued liabilities
   597       320
Other liabilities
   (5)       111




Cash flows from operating activities
   190       (102)




Cash flows from investing activities

Purchases of investments
   (90)       (175)
Proceeds from sales and maturities of investments
   117       76
Distributions of capital from equity method investees
   25       12
Net consolidations (deconsolidations) of sponsored investment funds
   (3)       (149)
Acquisitions, net of cash acquired
   -       (210)
Purchases of property and equipment
   (18)       (41)




Cash flows from investing activities
   31       (487)




~~BlackRock, Inc.~~
Condensed Consolidated Statements of Cash Flows ~~(continued)~~
(in millions)
(unaudited)

       Three Months Ended
March 31,        Six Months Ended
June 30,
         2013                2012              2013            2012
Cash flows from operating activities

Net income
   $1,372       $1,135
Adjustments to reconcile net income to cash flows from operating activities:

Depreciation and amortization
   144       145
Amortization of deferred sales commissions
   24       30
Stock-based compensation
   231       235
Deferred income tax expense (benefit)
   37       33
Gain related to PennyMac initial public offering
   (39)       -
Gain related to the charitable contribution
   (80)       -
Charitable contribution
   124       -
Net (gains) losses on non-trading investments
   (27)       (18)
Purchases of investments within consolidated sponsored investment funds
   (47)       (70)
Proceeds from sales and maturities of investments within consolidated sponsored investment funds
   77       41
Assets and liabilities of consolidated VIEs:

Change in cash and cash equivalents
   172       10
Net (gains) losses within consolidated VIEs
   (4)       1
Net (purchases) proceeds within consolidated VIEs
   (32)       169
(Earnings) losses from equity method investees
   (85)       (59)
Distributions of earnings from equity method investees
   32       18
Changes in operating assets and liabilities:

Accounts receivable
   (15)       (122)
Deferred sales commissions
   (28)       (23)
Investments, trading
   (70)       (188)
Other assets
   (94)       (136)
Accrued compensation and benefits
   (601)       (557)
Accounts payable and accrued liabilities
   207       90
Other liabilities
   32       131




Cash flows from operating activities
   1,330       865




Cash flows from investing activities

Purchases of investments
   (182)       (274)
Proceeds from sales and maturities of investments
   203       209
Distributions of capital from equity method investees
   38       32
Net consolidations (deconsolidations) of sponsored investment funds
   (3)       (204)
Acquisitions, net of cash acquired
   -       (212)
Purchases of property and equipment
   (46)       (98)




Cash flows from investing activities
   10       (547)




Cash flows from financing activities

Repayments of short-term borrowings
   (100)       -       (100)       -
Repayments of long-term borrowings
   (750)       -
Proceeds from long-term borrowings
   -       1,495
Cash dividends paid
   (309)       (285)       (595)       (545)
Proceeds from stock options exercised
   5       39       15       44
Proceeds from issuance of common stock
   1       2       3       4
Repurchases of common stock
   (461)       (262)       (715)       (1,305)
Merrill Lynch cash capital contribution
   -       7       -       7
Net proceeds from (repayments of) borrowings by consolidated VIEs
   (80)       (76)       (261)       (174)
Net (redemptions/distributions paid) subscriptions received from non-controlling interests holders
   107       127
Net (redemptions/distributions paid) subscriptions received from noncontrolling interests holders
   175       171
Excess tax benefit from stock-based compensation
   32       55       35       68








Cash flows from financing activities
   (805)       (393)       (2,193)       (235)








Effect of exchange rate changes on cash and cash equivalents
   (80)       28       (85)       6








Net increase (decrease) in cash and cash equivalents
   (664)       (954)       (938)       89
Cash and cash equivalents, beginning of period
   4,606       3,506       4,606       3,506








Cash and cash equivalents, end of period
   $3,942       $2,552       $3,668       $3,595








Supplemental disclosure of cash flow information:

Cash paid for:

Interest
   $24       $25       $102       $92
Interest on borrowings of consolidated VIEs
   $29       $18       $59       $35
Income taxes
   $78       $91       $492       $556
Supplemental schedule of non-cash investing and financing transactions:

Issuance of common stock
   $364       $335       $378       $352
Increase (decrease) in non-controlling interests due to net consolidation (deconsolidation) of sponsored investment funds
   ($7)       ($159)
Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored investment funds
   ($170)       ($246)
See accompanying notes to condensed consolidated financial statements.
BlackRock, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1.  Business Overview
BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) provides diversified investment management services to institutional clients, intermediary and individual investors through various investment vehicles. Investment management services primarily consist of the management of equity, fixed income, multi-asset, ~~class,~~ alternative investment and cash management products. BlackRock offers investment products in a variety of vehicles, including open-end and closed-end mutual funds,iShares^® exchange-traded funds (“ETFs”), collective investment trusts and separate accounts. In addition, BlackRock provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.
On ~~March 31,~~June 30, 2013, The PNC Financial Services Group, Inc. (“PNC”) held ~~20.7%~~20.8% of the Company’s voting common stock and ~~21.7%~~21.8% of the Company’s capital stock, which includes outstanding common and non-voting preferred stock.
2.  Significant Accounting Policies
Basis of Presentation.    These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its controlled subsidiaries. ~~Non-controlling~~Noncontrolling interests on the condensed consolidated statements of financial condition include the portion of consolidated sponsored investment funds in which the Company does not have direct equity ownership. Significant accounts and transactions between consolidated entities have been eliminated.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of ~~revenue~~revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013 (“2012 Form 10-K”).
The interim financial information at ~~March 31,~~June 30, 2013 and for the three and six months ended ~~March 31,~~June 30, 2013 and 2012 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
2.  Significant Accounting Policies (continued)

Fair Value Measurements.
Hierarchy of Fair Value Inputs.The provisions of Accounting Standards Codification (“ASC”)820-10,Fair Value Measurements and Disclosures (“ASC 820-10”), establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and require companies to disclose the fair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

Level 1 assets may include listed mutual funds (including those accounted for under the equity method of accounting as these mutual funds are investment companies that have publicly available net asset values (“NAVs”), which in accordance with GAAP, are calculated under fair value measures and the changes are equal to the earnings of such funds), ETFs, listed equities and certain exchange-traded derivatives.
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. As a practical expedient, the Company relies on the NAV (or its equivalent) of certain investments as their fair value.

Level 2 assets may include debt securities, bank loans, short-term floating rate notes and asset-backed securities, securities held within consolidated hedge funds, certain equity method limited partnership interests in hedge funds valued based on NAV (or its equivalent) where the Company has the ability to redeem at the measurement date or within the near term without redemption restrictions, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or liability, which may include non-binding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using a NAV (or its equivalent) and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

Level 3 assets may include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds and funds of hedge funds, direct private equity investments held within consolidated funds, bank loans and bonds.
2.  Significant Accounting Policies (continued)

Fair Value Measurements(continued)

Level 3 liabilities include borrowings of consolidated collateralized loan obligations (“CLOs”) valued based upon non-binding single-broker quotes.

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices.
Significance of Inputs.The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Valuation Techniques.The fair values of certain Level 3 assets and liabilities were determined using various methodologies as appropriate, including NAVs of underlying investments, third-party pricing vendors, broker quotes and market and income approaches. Such quotes and modeled prices are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of the current market environment and other analytical procedures.
As a practical expedient, the Company relies on NAV as the fair value for certain investments. The inputs to value these investments may include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, from third-party sources including independent ~~appraisals, from third-party sources.~~appraisals. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.
A significant amount of inputs used to value equity, debt securities and bank loans is sourced from well-recognized third-party pricing vendors. Generally, prices obtained from pricing vendors are categorized as Level 1 inputs for identical securities traded in active markets and as Level 2 for other similar securities if the vendor uses observable inputs in determining the price. Annually, BlackRock’s internal valuation committee or other designated groups review both the valuation methodologies, including the general assumptions and methods used to value various asset classes, and operational processes with these vendors. In addition, on a quarterly basis, meetings are held with the vendors to identify any significant changes to the vendors’ processes.
In addition, quotes obtained from brokers generally are non-binding and categorized as Level 3 inputs. However, if the Company is able to determine that market participants have transacted for the asset in an orderly manner near the quoted price or if the Company can determine that the inputs used by the broker are observable, the quote is classified as a Level 2 input.
Fair Value Option.ASC 825-10,Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies an irrevocable election to use fair value as the initial and
2.  Significant Accounting Policies (continued)

Fair Value Measurements(continued)

subsequent accounting measurement attribute for certain financial assets and liabilities. ASC 825-10 permits entities to elect to measure eligible financial assets and liabilities at fair value on an ongoing basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, which must be applied to an entire instrument, and not only specified risks, specific cash flows, or portions of that instrument, and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method.
Derivative Instruments and Hedging Activities.    ASC 815-10,Derivatives and Hedging (“(“ASC 815-10”), establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts and for hedging activities. ASC 815-10 generally requires an entity to recognize all derivatives as either assets or liabilities on the condensed consolidated statements of financial condition and to measure those investments at fair value.
The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging: (i) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities, (ii) market exposures for certain seed investments and (iii) future cash flows on floating-rate notes. The Company may also use derivatives within its separate account assets, which are segregated funds held for purposes of funding individual and group pension contracts. In addition, certain consolidated sponsored investment funds may also invest in derivatives as a part of their investment strategy.
Changes in the fair value of the Company’s derivative financial instruments are generally recognized in earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities or hedged investments, on the condensed consolidated statements of income.
Separate Account Assets and Liabilities.Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The life insurance company does not underwrite any insurance contracts that involve any insurance risk transfer from the insured to the life insurance company. The separate accounts assets primarily include equity, debt securities, money market funds and derivatives. The separate account assets are not subject to general claims of the creditors of BlackRock. These separate account assets and the related equal and offsetting liabilities are recorded as separate account assets and separate account liabilities on the condensed consolidated statements of financial condition in accordance with the ASC 944-80,Financial Services – Separate Accounts.
The net investment income attributable to separate account assets supporting individual and group pension contracts accrues directly to the contract owner and is not reported on the condensed consolidated statements of income. While BlackRock has no economic interest in these separate account assets and liabilities, BlackRock earns policy administration and management fees associated with these products, which are included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income.
2.  Significant Accounting Policies (continued)
Fair Value Measurements(continued)
Separate Account Collateral Assets Held and Liabilities Under Securities Lending Agreements.The Company facilitates securities lending arrangements whereby securities held
~~2.  Significant Accounting Policies (continued)~~
~~Fair Value Measurements (continued)~~
by separate account assets maintained by ~~BlackRock’s registered life insurance company~~BlackRock Life Limited are lent to third parties under global master securities lending agreements. In exchange, the Company receives collateral with minimum values generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. The required collateral value is calculated on a daily basis. The global master securities lending agreements provide the Company, in the event of customer default, the right to liquidate collateral or to request additional collateral. Under the Company’s securities lending arrangements, the Company can resell or re-pledge the collateral and the borrower can resell or re-pledge the loaned securities. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore, these transactions are not reported as sales under ASC 860,Transfers and Servicing.
As a result of the Company’s ability to resell or re-pledge the collateral, the Company records on the condensed consolidated statements of financial condition the cash and non-cash collateral received under these arrangements ~~(both cash and non-cash)~~ as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. During the six months ended June 30, 2013 and 2012, the Company had not re-sold or re-pledged any of the collateral received under these arrangements. At ~~March 31,~~June 30, 2013 and December 31, 2012, the fair value of loaned securities held by separate account assets was approximately ~~$19.1~~$17.7 billion and $21.0 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately ~~$20.9~~$19.4 billion and $23.0 billion, respectively. ~~During the three months ended March 31, 2013 and 2012, the Company had not re-sold or re-pledged any of the collateral received under these arrangements.~~
Appropriated Retained Earnings.    Upon the initial consolidation of CLOs, BlackRock ~~recorded~~records a cumulative effect adjustment to appropriated retained earnings on the condensed consolidated ~~statement~~statements of financial condition equal to the difference between the fair value of the CLOs’ assets and the fair value of their liabilities. Such amounts are recorded as appropriated retained earnings as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLOs’ assets and liabilities. The net change in the fair value of the CLOs’ assets and liabilities is recorded as net income (loss) attributable to nonredeemable ~~non-controlling~~noncontrolling interests and as an adjustment to appropriated retained earnings.
Accounting Pronouncements Adopted in the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2013
Amendments to Accumulated Other Comprehensive Income Disclosures.    On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02,Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which added new disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”). See Note ~~14 for~~15,Accumulated Other Comprehensive Income (Loss).
Disclosures About Offsetting Assets and Liabilities.    On December 16, 2011, the FASB issued ASU 2011-11,Disclosures About Offsetting Assets and Liabilities (“ASU 2011-11”), which creates new ~~disclosure.~~disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. On January 31, 2013, the FASB issued ASU 2013-01,Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities(“ASU 2013-01”), that provides clarification about which instruments and transactions are subject to ASU 2011-11. The adoption of ASU 2011-11 and ASU 2013-01 on January 1, 2013 was not material to the condensed consolidated financial statements.
2.  Significant Accounting Policies (continued)
Recent Accounting Pronouncements Not Yet Adopted
Cumulative Translation Adjustment.    In March 2013, the FASB issued ASU 2013-05,Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“(“ASU 2013-05”). ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 is effective for the Company on January 1, ~~2014~~2014. The Company does not believe the adoption of ASU 2013-05 will have a material impact on the condensed consolidated financial statements.
Investment Company Guidance.    In June 2013, the FASB issued ASU 2013-08,Financial Services — Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements(“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. The Company is currently evaluating the impact of adopting ASU 2013-08, which is effective for the Company on January 1, 2014.
Benchmark Interest Rate for Hedge Accounting.    In July 2013, the FASB issued ASU 2013-10,Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes(“ASU 2013-10”). ASU 2013-10 provides for the inclusion of certain interest rate benchmarks for hedge accounting purposes. ASU 2013-10 is effective for the Company for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The Company does not ~~expected to~~believe the adoption of ASU 2013-10 will have a material impact on the condensed consolidated financial statements.
Presentation of an Unrecognized Tax Benefit.    In July 2013, the FASB issued ASU No. 2013-11,Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists(“ASU 2013-11”). ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for the Company on January 1, 2014. The Company does not believe the adoption of ASU 2013-11 will have a material impact on the condensed consolidated financial statements.
3.  Investments
A summary of the carrying value of ~~total~~ investments is as follows:

(in millions) March 31,
2013    December 31,
2012 June 30,
2013    December 31,
2012
Available-for-sale investments
$178       $158    $150       $158
Held-to-maturity investments
53       112    53       112
Trading investments:

Consolidated sponsored investment funds
151       123    289       123
Other equity securities and debt securities
98       94
Other equity and debt securities
79       94
Deferred compensation plan mutual funds
56       53    57       53





Total trading investments
305       270    425       270
Other investments:

Consolidated sponsored investment funds
413       401    338       401
Equity method investments
505       595    545       595
Deferred compensation plan hedge fund equity method investments
10       9    10       9
Cost method investments⁽¹⁾
120       120    122       120
Carried interest
127       85    130       85





Total other investments
1,175       1,210    1,145       1,210





Total investments
            $1,711                   $1,750                $1,773                   $1,750





⁽¹⁾
Amounts primarily include Federal Reserve Bank ~~Stock~~Stock.
At ~~March 31,~~June 30, 2013, the Company consolidated ~~$564~~$627 million of investments held by consolidated sponsored investment funds (non-variable interest entities (“VIEs”)) of which ~~$151~~$289 million and ~~$413~~$338 million were classified as trading investments and other investments, respectively. At December 31, 2012, the Company consolidated $524 million of investments held by consolidated sponsored investment funds (non-VIEs) of which $123 million and $401 million were classified as trading investments and other investments, respectively.
Available-for-Sale Investments
A summary of the cost and carrying value of investments classified as available-for-sale investments is as follows:

(in millions)
Gross Unrealized Carrying
Value Gross Unrealized Carrying
Value
March 31, 2013 Cost Gains Losses
June 30, 2013 Cost Gains Losses Carrying
Value
Equity securities of sponsored investment funds
td62    td4    (td)    td75    td48    $3    ($4)
Other securities
1    2    -    3    2    1    -    3

Total available-for-sale investments
$163    $16    ($1)    $178    $150    $4    ($4)    $150

Gross Unrealized Carrying
Value Gross Unrealized Carrying
Value
December 31, 2012 Cost Gains Losses Cost Gains Losses
Equity securities of sponsored investment funds
$142    $14    ($1)    $155    $142    $14    ($1)    $155
Other securities
2    1    -    3    2    1    -    3

Total available-for-sale investments
        $144            $15            ($1)            $158            $144            $15            ($1)            $158

Available-for-sale investments primarily included seed investments in BlackRock sponsored investment mutual funds.
3.  Investments (continued)

Held-to-Maturity Investments
The carrying value of held-to-maturity investments was $53 million and $112 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively. Held-to-maturity investments included foreign government debt held for regulatory purposes and the amortized cost (carrying value) of these investments approximated fair value. At ~~March 31,~~June 30, 2013, $40 million of these investments ~~would~~ mature in one year or less and $13 million mature after 10 years.
Trading Investments
A summary of the cost and carrying value of trading investments is as follows:

(in millions)     March 31, 2013         December 31, 2012            June 30, 2013            December 31, 2012
Cost Carrying
Value Cost Carrying
Value    Cost
Carrying
Value
   Cost
Carrying
Value





Trading investments:

Deferred compensation plan mutual funds
$  51    $  56    $  46    $  53       $  51       $  57       $  46       $  53
Equity/Multi-asset class mutual funds
130    142    154    162
Equity/Multi-asset mutual funds
   93       100       154       162
Debt securities/fixed income mutual funds:

Corporate debt
48    49    44    44       159       156       44       44
U.S. government debt
60    58    11    11
Government debt
   119       112       11       11





Total trading investments
        $289            $305            $255            $270               $422               $425               $255               $270





At ~~March 31,~~June 30, 2013, trading investments included $80 million of equity securities and ~~$71~~$209 million of debt securities held by consolidated sponsored investment funds, ~~$56~~$57 million of certain deferred compensation plan mutual fund investments and ~~$98~~$79 million of other equity and debt securities.
Other Investments
A summary of the cost and carrying value of other investments is as follows:

(in millions)        March 31, 2013            December 31, 2012            June 30, 2013            December 31, 2012
   Cost    Carrying
Value    Cost    Carrying
Value    Cost
Carrying
Value
   Cost
Carrying
Value









Other investments:

Consolidated sponsored investment funds
   $389       $413       $378       $401       $325       $338       $378       $401
Equity method
   437       505       541       595       467       545       541       595
Deferred compensation plan hedge fund
equity method investments
   9       10       15       9       9       10       15       9
Cost method investments:

Federal Reserve Bank stock
   90       90       89       89       92       92       89       89
Other
   18       30       31       31       19       30       31       31








Total cost method investments
   108       120       120       120       111       122       120       120
Carried interest
   -       127       -       85       -       130       -       85








Total other investments
           $943               $1,175               $1,054               $1,210               $912               $1,145               $1,054               $1,210








Consolidated sponsored investment funds include third-party private equity funds, direct investments in private companies and third-party hedge funds held by BlackRock sponsored investment funds.
3.  Investments (continued)

Other Investments (continued)

Equity method investments primarily include BlackRock’s direct investment in certain BlackRock sponsored investment funds. See Note 10,Other Assets, for information on the Company’s investment in PennyMac Financial Services, Inc. (“PennyMac”), which is included in other assets on the condensed consolidated statements of financial condition.
Cost method investments include non-marketable securities, including Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale. At ~~March 31,~~June 30, 2013 and December 31, 2012, there were no indicators of impairment on these investments.
Carried interest represents allocations to BlackRock’s general partner capital accounts from certain funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.
4.  Consolidated Sponsored Investment Funds
The Company consolidates certain sponsored investment funds primarily because it is deemed to control such ~~funds in accordance with GAAP.~~funds. The investments owned by these consolidated sponsored investment funds are classified as trading or other investments. The following table presents the balances related to these consolidated funds that were included on the condensed consolidated statements of financial condition as well as BlackRock’s net interest in these funds:

(in millions)    March 31,
2013 December 31,
2012    June 30,
2013    December 31,
2012
Cash and cash equivalents
   $117    $133       $185       $133
Investments:

Trading investments
   151    123       289       123
Other investments
   413    401       338       401
Other assets
   15    25       16       25
Other liabilities
   (51 ) (65 )    (41)       (65)
Non-controlling interests
   (180 ) (187 )
Noncontrolling interests
   (212)       (187)






BlackRock’s net interests in consolidated sponsored investment funds
                     $465                        $430                         $575                         $430






BlackRock’s total exposure to consolidated sponsored investment funds of ~~$465~~$575 million and $430 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively, represents the value of the Company’s economic ownership interest in these sponsored investment funds. Valuation changes associated with these consolidated investment funds are reflected in non-operating income (expense) and partially offset in net income (loss) attributable to ~~non-controlling~~noncontrolling interests for the portion not attributable to BlackRock.
In addition, at ~~March 31,~~June 30, 2013 and December 31, 2012, several consolidated CLOs and one investment ~~funds,~~fund, which were deemed to be VIEs, were excluded from the balances in the table above as the balances for these investment products are reported separately on the condensed consolidated statements of financial condition. See Note 6,Variable Interest Entities, for further discussion onof these consolidated investment products.
The Company ~~may~~is not be readily able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company ~~may~~is not be readily able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in the Company’s operations.
5.  Fair Value Disclosures
Fair Value Hierarchy
~~March 31,~~June 30, 2013
Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:

Assets measured at fair value on a
recurring basis Assets measured at fair value on a
recurring basis
(in millions)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other Assets
Not Held at Fair
Value⁽¹⁾
March 31,
2013

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other Assets
Not Held at Fair
Value⁽¹⁾
June 30,
2013

Assets:

Investments

Available-for-sale:

Equity securities (funds and CDOs)
$175    $-    $1    $-    $176    $147    $-    $1    $-    $148
Debt securities
-    2    -    -    2    -    2    -    -    2

Total available-for-sale
175    2    1    -    178    147    2    1    -    150
Held-to-maturity:

Debt securities
-    -    -    53    53    -    -    -    53    53
Trading:

Deferred compensation plan mutual funds
56    -    -    -    56    57    -    -    -    57
Equity/Multi-asset class mutual funds
139    3    -    -    142
Equity/Multi-asset mutual funds
97    3    -    -    100
Debt securities / fixed income mutual funds
37    70    -    -    107    58    210    -    -    268

Total trading
232    73    -    -    305    212    213    -    -    425
Other investments:

Consolidated sponsored investment funds:

Hedge funds / Funds of funds
3    39    84    -    126    3    24    47    -    74
Private / public equity⁽²⁾
7    16    264    -    287    2    13    249    -    264

Total consolidated sponsored investment funds
10    55    348    -    413    5    37    296    -    338
Equity method:

Hedge funds / Funds of hedge funds
-    65    136    53    254    -    68    157    52    277
Private equity investments
-    -    99    -    99    -    -    105    -    105
Real estate funds
-    19    91    9    119    -    19    97    7    123
Equity/Multi-asset class, alternative mutual funds
33    -    -    -    33
Fixed income mutual funds
34    -    -    -    34
Equity/Multi-asset, alternative mutual funds
6    -    -    -    6

Total equity method
33    84    326    62    505    40    87    359    59    545
Deferred compensation plan hedge fund equity method investments
-    10    -    -    10    -    10    -    -    10
Cost method investments
-    -    -    120    120    -    -    -    122    122
Carried interest
-    -    -    127    127    -    -    -    130    130

Total investments
450    224    675    362    1,711    404    349    656    364    1,773

Separate account assets
97,815    38,536    -    951    137,302    95,377    36,635    -    834    132,846
Separate account collateral held under securities lending agreements:

Equity securities
19,275    -    -    -    19,275    17,880    -    -    -    17,880
Debt securities
-    1,664    -    -    1,664    -    1,546    -    -    1,546

Total separate account collateral held under securities lending agreements
19,275    1,664    -    -    20,939    17,880    1,546    -    -    19,426
Other assets⁽³⁾
-    12    -    -    12    -    12    -    -    12
Assets of consolidated VIEs:

Assets of consolidated VIEs:

Bank loans
-    2,125    97    -    2,222    -    1,910    93    -    2,003
Bonds
-    90    49    -    139    -    60    35    -    95
Private / public equity⁽⁴⁾
-    7    20    -    27    -    7    19    -    26
Fund of hedge funds
10    -    116    126

Total assets of consolidated VIEs
10    2,222    282    -    2,514    -    1,977    147    -    2,124

Total
        $117,550            $42,658            $957            $1,313            $162,478            $113,661            $40,519            $803            $1,198            $156,181

⁽¹⁾
Amounts comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.
⁽²⁾
~~Amount within~~ Level 3 amounts included ~~$214~~$209 million and ~~$50~~$40 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.
⁽³⁾
Amount included company-owned and split-dollar life insurance policies.
⁽⁴⁾
~~Amount within~~ Level 3 amounts included ~~$19~~$17 million and $1$2 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.
5.  Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at ~~March 31,~~June 30, 2013 were as follows:

(in millions) Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
March 31,
2013
   Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)
June 30,
2013

Liabilities:

Borrowings of consolidated VIEs
$-    $-    $2,332    $2,332       $           -       $         -       $2,145       $  2,145
Separate account collateral liabilities under securities lending agreements
19,275    1,664    -    20,939       17,880       1,546       -       19,426
Other liabilities⁽¹⁾
15    5    -    20       16       5       -       21



Total liabilities measured at fair value
        $19,290            $1,669            $2,332            $23,291               $17,896               $1,551               $2,145               $21,592



⁽¹⁾
Amounts included a credit default swap (see Note 7,Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated ~~statement~~statements of financial condition.
5.  Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

December 31, 2012
Assets measured at fair value on a recurring basis and other assets not held at fair value were as follows:

Assets measured at fair value on a
recurring basis Assets measured at fair value on a
recurring basis
(in millions) Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other Assets
Not Held at
Fair Value ⁽¹⁾ December 31,
2012 Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other Assets
Not Held at
Fair Value ⁽¹⁾ December 31,
2012
Assets:

Investments

Available-for-sale:

Equity securities (funds and CDOs)
    $ 155    $ - $ 1    $ - $ 156    $ 155    $ -    $ 1    $ -    $ 156
Debt securities
- 2    - - 2    -    2    -    -    2

Total available-for-sale
155    2    1    - 158    155    2    1    -    158
Held-to-maturity:

Debt securities
- - - 112    112    -    -    -    112    112
Trading:

Deferred compensation plan mutual funds
53    - - - 53    53    -    -    -    53
Equity/Multi-asset class mutual funds
159    3    - - 162
Equity/Multi-asset mutual funds
159    3    -    -    162
Debt securities / fixed income mutual funds
5 50    - - 55    5    50    -    -    55

Total trading
217    53    - - 270    217    53    -    -    270
Other investments:

Consolidated sponsored investment funds:

Hedge funds / Funds of funds
3 39    73    - 115    3    39    73    -    115
Private / public equity⁽²⁾
10    10    266    - 286
Private / public equity⁽²⁾
10    10    266    -    286

Total consolidated sponsored investment funds
13    49    339    - 401    13    49    339    -    401
Equity method:

Hedge funds / Funds of hedge funds
- 61    161    39    261    -    61    161    39    261
Private equity investments
- - 90    - 90    -    -    90    -    90
Real estate funds
- 19 88    15    122    -    19    88    15    122
Fixed income mutual funds
46    - - - 46    46    -    -    -    46
Equity/Multi-asset class, alternative mutual funds
76    - - - 76
Equity/Multi-asset, alternative mutual funds
76    -    -    -    76

Total equity method
122    80    339    54    595    122    80    339    54    595
Deferred compensation plan hedge fund equity method investments
- 9    - - 9    -    9    -    -    9
Cost method investments
- - - 120    120    -    -    -    120    120
Carried interest
- - - 85    85    -    -    -    85    85

Total investments
507    193    679    371    1,750    507    193    679    371    1,750

Separate account assets
95,514    38,392    2    860    134,768    95,514    38,392    2    860    134,768
Separate account collateral held under securities lending agreements:

Separate account collateral held under securities lending agreements:

Equity securities
21,273    - - - 21,273    21,273    -    -    -    21,273
Debt securities
- 1,748    - - 1,748    -    1,748    -    -    1,748

Total separate account collateral held under securities lending agreements
21,273    1,748    - - 23,021    21,273    1,748    -    -    23,021
Other assets⁽³⁾
- 12    - - 12
Other assets⁽³⁾
-    12    -    -    12
Assets of consolidated VIEs:

Bank loans
- 2,004    106    - 2,110    -    2,004    106    -    2,110
Bonds
- 78    46    - 124    -    78    46    -    124
Private / public equity⁽⁴⁾
2    6    22    - 30
Private / public equity⁽⁴⁾
2    6    22    -    30

Total assets of consolidated VIEs
2    2,088    174    - 2,264    2    2,088    174    -    2,264

Total
    $     117,296    $         42,433    $             855    $         1,231    $         161,815    $ 117,296    $ 42,433    $ 855    $ 1,231    $ 161,815

⁽¹⁾
Amounts comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.
⁽²⁾
~~Amount within~~ Level 3 amounts included $212 million and $54 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.
⁽³⁾
Amount included company-owned and split-dollar life insurance policies.
⁽⁴⁾
~~Amount within~~ Level 3 amounts included $20 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.
5.  Fair Value Disclosures (continued)

Fair Value Hierarchy (continued)

Liabilities measured at fair value on a recurring basis at December 31, 2012 were as follows:

(in millions)
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
   December 31,
2012
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
   December 31,
2012
Liabilities:

Borrowings of consolidated VIEs
$-       $-       $2,402       $2,402       $ -       $ -       $ 2,402       $ 2,402
Separate account collateral liabilities under securities lending agreements
21,273       1,748       -       23,021       21,273       1,748       -       23,021
Other liabilities⁽¹⁾
15       5       -       20       15       5       -       20



Total liabilities measured at fair
value
        $21,288           $1,753           $2,402           $25,443               $ 21,288           $ 1,753           $ 2,402           $ 25,443



⁽¹⁾
Amounts include a credit default swap (see Note 7,Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds recorded within other liabilities on the condensed consolidated ~~statement~~statements of financial condition.
Level 3 Assets.  Level 3 ~~assets recorded within~~ investments of ~~$675~~$656 million and $679 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively, primarily related to equity method investments and consolidated sponsored investment funds. Level 3 assets within investments, except for direct investments in private equity companies held by private equity funds described below, were primarily valued based upon NAVs received from internal as well as third-party fund managers.
Direct investments in private equity companies held by private equity funds totaled ~~$51~~$42 million and $56 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used is evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the expected cash flows to a single present value amount using current expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For securities utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For securities utilizing the market comparable companies valuation technique, a
~~5.  Fair Value Disclosures (continued)~~
~~Fair Value Hierarchy (continued)~~
significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.
5.  Fair Value Disclosures (continued)
Fair Value Hierarchy (continued)
Level 3 assets recorded within separate account assets include single-broker non-binding quotes for fixed income securities and equity securities that have unobservable inputs due to certain corporate actions.
Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker non-binding quotes and direct private equity investments and private equity funds valued based upon ~~valuations received from~~ internal as well as third-party fund ~~managers,~~manager valuations, which may be adjusted by using the returns of certain market indices.
Level 3 Liabilities.  Level 3 liabilities recorded as borrowings of consolidated VIEs include CLO borrowings valued based upon single-broker non-binding quotes.
5.  Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended ~~March 31,~~June 30, 2013

(in millions)    December 31,
2012    Realized
and
unrealized
gains
(losses) in
earnings
and OCI    Purchases    Sales and
maturities    Issuances and
other
settlements⁽¹⁾    Transfers
into
Level 3    Transfers
out of
Level 3    March 31,
2013    Total net unrealized
gains (losses)
included in
earnings⁽²⁾    March 31,
2013    Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases    Sales and
maturities Issuances and
other
settlements⁽¹⁾ Transfers
into
Level 3    Transfers
out of
Level 3 June 30,
2013    Total net
gains (losses)
included in
earnings⁽²⁾
Assets:

Investments

Available-for-sale:

Equity securities (CDOs)
   $1       $-       $-       $-       $-       $-       $-       $1       $-       $1       $-    $-       $-    $-    $-       $-    $1       $-
Consolidated sponsored investment funds:

Hedge funds / Funds of funds
   73       4       12       -       -       -       (5)       84       4       84       2    -       (9 ) (28 ) -       (2 ) 47       2
Private equity
   266       23       7       (29)       -       -       (3)       264       20       264       (7 ) 5       (10 ) -    -       (3 ) 249       (6 )
Equity method:

Hedge funds / Funds of hedge funds
   161       4       1       -       (30)       -       -       136       4       136       5    -       -    16    -       -    157       5
Private equity investments
   90       6       5       -       (2)       -       -       99       6       99       4    4       -    (2 ) -       -    105       4
Real estate funds
   88       1       2       -       -       -       -       91       2       91       7    1       -    (2 ) -       -    97       6




Total Level 3 investments
   679       38       27       (29)       (32)       -       (8)       675       36       675       11    10       (19 ) (16 ) -       (5 ) 656       11




Separate account assets
   2       -       -       (2)       -       -       -       -       n/a ⁽³⁾
Assets of consolidated VIEs:

Bank loans
   106       -       24       (11)       -       15       (37)       97          97       (1 ) 48       (29 ) -    17       (39 ) 93
Bonds
   46       (1)       4       -       -       -       -       49          49       -    -       (14 ) -    -       -    35
Private equity
   22       1       -       (3)       -       -       -       20          20       -    -       (1 ) -    -       -    19
Fund of hedge funds
   -       -       116       -       -       -       -       116          116       -    18       -    (134 ) -       -    -





Total Level 3 assets of consolidated VIEs
   174       -       144       (14)       -       15       (37)       282       n/a ⁽⁴⁾    282       (1 ) 66       (44 ) (134 ) 17       (39 ) 147       n/a ⁽³⁾





Total Level 3 assets
   $855       $38       $171       ($45)       ($32)       $15       ($45)       $957          $957       $10    $76       ($63 ) ($150 ) $17       ($44 ) $803





Liabilities:

Borrowings of consolidated VIEs
           $2,402       ($10)       $-       $-       ($80)       $-       $-       $2,332       n/a ⁽⁴⁾            $2,332       $6    $-       $-    ($181 ) $-       $-    $2,145       n/a ⁽³⁾

n/a – not applicable
⁽¹⁾~~Amount~~
Amount primarily includes distributions from equity method investees, ~~and repayment~~repayments of borrowings of consolidated ~~VIEs.~~VIEs, elimination of investment related to a deconsolidation of a consolidated VIE and a reclassification of an investment from a consolidated sponsored investment fund to an equity method investment due to a change in ownership percentage.
⁽²⁾~~Earnings~~
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
⁽³⁾~~The~~
The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.
5.  Fair Value Disclosures (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2013
(in millions)    December 31,
2012    Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases    Sales and
maturities Issuances and
other
settlements⁽¹⁾ Transfers
into
Level 3    Transfers
out of
Level 3 June 30,
2013    Total net
gains
(losses)
included in
earnings⁽²⁾
Assets:

Investments

Available-for-sale:

Equity securities (CDOs)
   $1       $-    $-       $-    $-    $-       $-    $1       $-
Consolidated sponsored investment funds:

Hedge funds / Funds of hedge funds
   73       6    12       (9 ) (28 ) -       (7 ) 47       6
Private equity
   266       16    12       (39 ) -    -       (6 ) 249       14
Equity method:

Hedge funds / Funds of hedge funds
   161       9    1       -    (14 ) -       -    157       9
Private equity investments
   90       10    9       -    (4 ) -       -    105       10
Real estate funds
   88       8    3       -    (2 ) -       -    97       8


Total Level 3 investments
   679       49    37       (48 ) (48 ) -       (13 ) 656       47



Separate account assets
   2       -    -       (2 ) -    -       -    -       n/a ⁽³⁾
Assets of consolidated VIEs:

Bank loans
   106       (1 ) 72       (40 ) -    32       (76 ) 93
Bonds
   46       (1 ) 4       (14 ) -    -       -    35
Private equity
   22       1    -       (4 ) -    -       -    19
Fund of hedge funds
   -       -    134       -    (134 ) -       -    -       -



Total Level 3 assets of consolidated VIEs
   174       (1 ) 210       (58 ) (134 ) 32       (76 ) 147       n/a ⁽⁴⁾



Total Level 3 assets
   $855       $48    $247       ($108 ) ($182 ) $32       ($89 ) $803



Liabilities:

Borrowings of consolidated VIEs
           $2,402       ($4 ) $-       $-    ($261 ) $-       $-    $2,145       n/a ⁽⁴⁾
n/a – not applicable
⁽¹⁾
Amount primarily includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, elimination of investment related to a deconsolidation of a consolidated VIE and a reclassification of an investment from a consolidated sponsored investment fund to an equity method investment due to a change in ownership percentage.
⁽²⁾
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
⁽³⁾
The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.
⁽⁴⁾~~The~~
The net gain (loss) on consolidated VIEs is solely attributable to ~~non-controlling~~noncontrolling interests on the condensed consolidated statements of income.
5.  Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended ~~March 31,~~June 30, 2012

(in millions)    December 31,
2011    Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases    Sales and
maturities Issuances and
other
settlements⁽¹⁾ Transfers
into
Level 3    Transfers
out of
Level 3 March 31,
2012    Total net unrealized
gains (losses)
included in
earnings⁽²⁾    March 31,
2012    Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases    Sales and
maturities Issuances and
other
settlements⁽¹⁾ Transfers
into
Level 3    Transfers
out of
Level 3 June 30,
2012    Total net
gains (losses)
included in
earnings⁽²⁾
Assets:

Investments

Available-for-sale:

Equity securities (CDOs)
   $1       $-    $-       $-    $-    $-       $-    $1       $-       $1       $-    $-       $-    $-    $-       $-    $1       $-
Consolidated sponsored investment funds:

Hedge funds / Funds of hedge funds
   22       1    27       -    -    3       -    53       1
Hedge funds / Funds of funds
   53       (5 ) -       -    (2 ) -       -    46       (5 )
Private equity
   313       29    5       (18 ) -    -       -    329       27       329       (8 ) 4       (21 ) -    -       (6 ) 298       (9 )
Equity method:

Hedge funds / Funds of hedge funds
   193       16    -       -    (12 ) -       -    197       16       197       3    -       -    (13 ) -       -    187       3
Private equity investments
   85       4    2       -    (2 ) -       -    89       4       89       2    1       -    (4 ) -       -    88       2
Real estate funds
   88       -    7       -    -    -       -    95       -       95       2    6       -    (2 ) -       -    101       2




Total Level 3 investments
   702       50    41       (18 ) (14 ) 3       -    764       48       764       (6 ) 11       (21 ) (21 ) -       (6 ) 721       (7 )




Separate account assets
   10       1    1       (9 ) -    11       (1 ) 13       n/a ⁽³⁾    13       (2 ) 3       (2 ) -    3       (8 ) 7       n/a ⁽³⁾
Assets of consolidated VIEs:

Bank loans
   83       -    7       (6 ) -    5       (42 ) 47          47       1    10       (1 ) -    47       (19 ) 85
Bonds
   40       2    2       -    -    -       -    44          44       -    -       -    -    -       -    44
Private equity
   27       3    -       (2 ) -    -       -    28          28       (1 ) -       (2 ) -    -       -    25





Total Level 3 assets of consolidated VIEs
   150       5    9       (8 ) -    5       (42 ) 119       n/a ⁽⁴⁾    119       -    10       (3 ) -    47       (19 ) 154       n/a ⁽⁴⁾





Total Level 3 assets
           $862       $56    $51       ($35 ) ($14 ) $19       ($43 ) $896          $896       ($8 ) $24       ($26 ) ($21 ) $50       ($33 ) $882





Liabilities:

Borrowings of consolidated VIEs
   $1,574       ($49 ) $-       $-    ($76 ) $-       $-    $1,547       n/a ⁽⁴⁾            $1,547       $10    $-       $-    ($98 ) $-       $-    $1,439       n/a ⁽⁴⁾

~~n/a – not applicable~~
n/a – not applicable
⁽¹⁾
Amount primarily includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.
⁽²⁾~~Earnings~~
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
⁽³⁾~~The~~
The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.
⁽⁴⁾~~The~~
The net gain (loss) on consolidated VIEs is solely attributable to ~~non-controlling~~noncontrolling interests on the condensed consolidated statements of income.
5.  Fair Value Disclosures (continued)
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2012
(in millions)    December 31,
2011    Realized
and
unrealized
gains
(losses) in
earnings
and OCI Purchases    Sales and
maturities Issuances and
other
settlements⁽¹⁾ Transfers
into
Level 3    Transfers
out of
Level 3 June 30,
2012    Total net
gains (losses)
included in
earnings⁽²⁾
Assets:

Investments

Available-for-sale:

Equity securities (CDOs)
   $1       $-    $-       $-    $-    $-       $-    $1       $-
Consolidated sponsored investment funds:

Hedge funds / Funds of funds
   22       (4 ) 27       -    (2 ) 3       -    46       (4 )
Private equity
   313       21    9       (39 ) -    -       (6 ) 298       18
Equity method:

Hedge funds / Funds of hedge funds
   193       19    -       -    (25 ) -       -    187       19
Private equity investments
   85       6    3       -    (6 ) -       -    88       6
Real estate funds
   88       2    13       -    (2 ) -       -    101       2


Total Level 3 investments
   702       44    52       (39 ) (35 ) 3       (6 ) 721       41


Separate account assets
   10       (1 ) 4       (11 ) -    14       (9 ) 7       n/a ⁽³⁾
Assets of consolidated VIEs:

Bank loans
   83       1    17       (7 ) -    52       (61 ) 85
Bonds
   40       2    2       -    -    -       -    44
Private equity
   27       2    -       (4 ) -    -       -    25



Total Level 3 assets of consolidated VIEs
   150       5    19       (11 ) -    52       (61 ) 154       n/a ⁽⁴⁾



Total Level 3 assets
   $862       $48    $75       ($61 ) ($35 ) $69       ($76 ) $882



Liabilities:

Borrowings of consolidated VIEs
           $1,574       ($39 ) $-       $-    ($174 ) $-       $-    $1,439       n/a ⁽⁴⁾
n/a – not applicable
⁽¹⁾
Amount primarily includes distributions from equity method investees and repayments of borrowings of consolidated VIEs.
⁽²⁾
Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.
⁽³⁾
The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.
⁽⁴⁾
The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.
5.  Fair Value Disclosures (continued)

Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities.Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in non-operating income (expense) on the condensed consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs are allocated to ~~non-controlling~~noncontrolling interests to reflect net income (loss) not attributable to the Company.
Transfers in and/or out of Levels.Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become ~~observable /~~ observable/unobservable, or when the Company determines it has the ability, or no longer has the ability, to redeem, in the near term, certain investments that the Company values using a NAV (or a capital account), or when the book value of certain equity method investments no longer represents fair value as determined under valuation methodologies.
Separate Account Assets.    During the six months ended June 30, 2012, there were $14 million of transfers of equity securities into Level 3 from Level 1. These transfers into Level 3 primarily were due to market inputs no longer being considered observable.
During the three and six months ended June 30, 2012, there were $8 million of transfers out of Level 3 into Level 1 related to equity securities held within separate accounts. These transfers out of Level 3 were due to availability of observable market inputs.
Assets of Consolidated VIEs.    During the three and six months ended ~~March 31,~~June 30, 2013, ~~and 2012,~~ there were ~~$37~~$39 million and ~~$42~~$76 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and six months ended ~~March 31,~~June 30, 2013, ~~and 2012,~~ there were ~~$15~~$17 million and $5$32 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.
During the three and six months ended June 30, 2012, there were $19 million and $61 million, respectively, of transfers out of Level 3 into Level 2 related to bank loans. In addition, during the three and six months ended June 30, 2012, there were $47 million and $52 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 primarily were due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.
Consolidated Sponsored Investment Funds.    During the ~~three~~six months ended ~~March 31,~~June 30, 2013, there were $12 million of transfers out of Level 1 to Level 2 related to consolidated private equity funds. This transfer was due to a direct investment in a public company held by a consolidated private equity fund valued at a discount due to restrictions on sale.
Other Significant ~~Other~~ Settlements.During the three and six months ended ~~March 31,~~June 30, 2013, ~~and 2012,~~ there were ~~$32~~$16 million and ~~$14~~$48 million, respectively, of distributions from equity method investees categorized in Level 3.
During the three and six months ended June 30, 2012, there were $19 million and $33 million, respectively, of distributions from equity method investees categorized in Level 3.
During the three and six months ended June 30, 2013, other settlements included $134 million related to a deconsolidation of a consolidated fund of hedge funds, which was previously classified as a VIE. This fund was deconsolidated during the second quarter 2013 due to the granting of additional substantive rights to unaffiliated investors of the fund.
5.  Fair Value Disclosures (continued)
In addition, during the three and six months ended June 30, 2013, there was a $28 million reclassification of a Level 3 investment from a consolidated sponsored investment fund to an equity method investment due to a change in ownership percentage.
Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At ~~March 31,~~June 30, 2013 and December 31, 2012, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:

March 31, 2013 December 31, 2012 June 30, 2013 December 31, 2012
(in millions)    Carrying
Amount    Estimated
Fair Value    Carrying
Amount    Estimated
Fair Value    Fair Value
Hierarchy    Carrying
Amount    Estimated
Fair Value    Carrying
Amount    Estimated
Fair Value    Fair Value
Hierarchy
Financial Assets:

Cash and cash equivalents
$ 3,942    $ 3,942    $ 4,606    $ 4,606    Level 1 ⁽¹⁾ $ 3,668    $ 3,668    $ 4,606    $ 4,606    Level 1 ⁽¹⁾
Accounts receivable
2,618    2,618    2,250    2,250    Level 1 ⁽²⁾ 2,249    2,249    2,250    2,250    Level 1 ⁽²⁾
Due from related parties
73    73    77    77    Level 1 ⁽²⁾
Cash and cash equivalents of consolidated VIEs
290    290    297    297    Level 1 ⁽¹⁾ 125    125    297    297    Level 1 ⁽¹⁾
Financial Liabilities:

Accounts payable and accrued liabilities
1,657    1,657    1,055    1,055    Level 1 ⁽²⁾ 1,271    1,271    1,055    1,055    Level 1 ⁽²⁾
Due to related parties
13    13    14    14    Level 1 ⁽²⁾
Short-term borrowings
-    -    100    100    Level 1 ⁽²⁾ -    -    100    100    Level 1 ⁽²⁾
Long-term borrowings
5,687    6,234    5,687    6,275    Level 2 ⁽³⁾ 4,938    5,308    5,687    6,275    Level 2 ⁽³⁾

⁽¹⁾
Cash and cash equivalents are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. At ~~March 31,~~June 30, 2013 and December 31, 2012, approximately ~~$117~~$185 million and $133 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment funds. Money market
~~5.  Fair Value Disclosures (continued)~~
funds are valued ~~through the use of~~based on quoted market prices, or $1.00, which generally is the NAV of the fund. At ~~March 31,~~June 30, 2013 and December 31, 2012, approximately ~~$65~~$124 million and $98 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition.

⁽²⁾
The carrying amounts of accounts receivable, ~~due from related parties,~~ accounts payable and accrued liabilities ~~due to related parties~~ and short-term borrowings approximate fair value due to their short-term nature.

⁽³⁾
Long-term borrowings are recorded at amortized cost. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of ~~March~~June 2013 and December 2012, respectively. See Note 1011,Borrowings, for further information on the ~~March 31,~~June 30, 2013 fair value of the Company’s long-term borrowings.
5.  Fair Value Disclosures (continued)
Investments in Certain Entities that Calculate Net Asset Value Per ~~Share.~~Share
As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company relies on NAV as the fair value for certain investments. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or its equivalent).
~~March 31,~~June 30, 2013

(in millions)
Ref

Fair Value

Total Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period
Ref Fair Value Total Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Trading:

Equity
(a) $3    $-    Daily (100%) None (a ) $3    $-    Daily (100%) None
Consolidated sponsored investment funds:

Private equity funds of funds
(b) 214    28    n/r n/r (b ) 209    26    n/r n/r
Other funds of hedge funds
(c) 110    -
Monthly (19%),
Quarterly (13%), n/r (68%)
2 – 90 days (c ) 58    -
Monthly (29%),
Quarterly (3%), n/r (68%)
2 – 90 days
Equity method:⁽¹⁾

Hedge funds/funds of hedge funds
(d) 200    68
Monthly (3%), Quarterly (32%)
n/r (65%)
15 – 90 days
(d ) 224    73
Monthly (2%), Quarterly (30%)
n/r (68%)
15 – 90 days
Private equity funds
(e) 99    91    n/r n/r (e ) 105    86    n/r n/r
Real estate funds
(f) 110    13
Quarterly (17%)
n/r (83%)
60 days (f ) 116    13
Quarterly (16%)
n/r (84%)
60 days
Deferred compensation plan hedge fund investments
(g) 10    -    Monthly (30%), Quarterly (70%) 60 – 90 days (g ) 10    -    Monthly (30%), Quarterly (70%) 60 – 90 days
Consolidated VIEs:

Consolidated VIEs:

Private equity fund
(h) 19    1    n/r n/r (h ) 17    1    n/r n/r
Fund of hedge funds
(i) 116    -    Quarterly (100%) 90 days

Total
$881    $201    $742    $199

n/r – not redeemable

⁽¹⁾
Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.
5.  Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

December 31, 2012

(in millions)
Ref

Fair Value

Total
Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period
Ref Fair Value Total
Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Trading:

Trading:

Equity
(a ) $ 3    $ - Daily (100%) None (a ) $3    $-    Daily (100%) None
Consolidated sponsored investment funds:

Consolidated sponsored investment funds:

Private equity funds of funds
(b ) 212    32    n/r n/r (b ) 212    32    n/r n/r
Other funds of hedge funds
(c ) 98    -
Monthly (22%)
Quarterly (11%)
n/r (67%)
1 – 90 days (c ) 98    -
Monthly (22%)
Quarterly (11%)
n/r (67%)
1 – 90 days
Equity method:⁽¹⁾

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds
(d ) 222    42
Monthly (2%)
Quarterly (28%)
n/r (70%)
15 – 90 days (d ) 222    42
Monthly (2%)
Quarterly (28%)
n/r (70%)
15 – 90 days
Private equity funds
(e ) 90    135    n/r n/r (e ) 90    135    n/r n/r
Real estate funds
(f ) 107    15
Quarterly (18%)
n/r (82%)
60 days (f ) 107    15
Quarterly (18%)
n/r (82%)
60 days
Deferred compensation plan hedge fund investments
(g ) 9    -
Monthly (33%)
Quarterly (67%)
60 – 90 days (g ) 9    -
Monthly (33%)
Quarterly (67%)
60 – 90 days
Consolidated VIE:

Consolidated VIE:

Private equity funds
(h ) 20    1    n/r n/r (h ) 20    1    n/r n/r

Total
$           761    $                 225    $          761    $                225

n/r – not redeemable

⁽¹⁾
Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

(a) This category includes consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the investments in this category have been estimated using the NAV of master offshore funds held by the feeder funds. Investments in this category generally can be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

(b) This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately seven years at both ~~March 31,~~June 30, 2013 and December 31, 2012. The total remaining unfunded commitments to other third-party funds were ~~$28~~$26 million and $32 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively. The Company was contractually obligated to fund $30 million at both ~~March 31,~~June 30, 2013 and December 31, 2012 to the consolidated funds.
~~5.  Fair Value Disclosures (continued)~~
~~Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)~~

(c) This category includes consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. Certain of the underlying funds can be redeemed as long as there are no restrictions in place. At ~~March 31,~~June 30, 2013 and December 31, 2012, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months. This category also includes a consolidated offshore feeder fund that invests in a master fund with multiple alternative investment strategies. The fair value of this investment has been estimated using the NAV of the master offshore fund held by the feeder fund. The investment is currently subject to restrictions in place by the underlying master fund.
5.  Fair Value Disclosures (continued)
Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

(d) This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately four and five years at ~~both March 31,~~June 30, 2013 and December 31, ~~2012.~~2012, respectively.

(e) This category includes several private equity funds that initially invest in non-marketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately five years at both ~~March 31,~~June 30, 2013 and December 31, 2012.

(f) This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. A majority of the Company’s investments are not subject to redemption or are not currently redeemable and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately seven years at ~~March 31,~~June 30, 2013 and eight years at December 31, 2012.

(g) This category includes investments in certain hedge funds that invest in energy and health science related equity securities. The fair values of the investments in this category have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments in these funds will be liquidated upon settlement of certain deferred compensation liabilities.

(h) This category includes the underlying third-party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately two years at ~~March 31,~~June 30, 2013 and three years at December 31, 2012. Total remaining unfunded commitments to other third-party funds were $1 million at both ~~March 31,~~June 30, 2013 and December 31, 2012, which commitments are required to be funded by capital contributions from ~~non-controlling~~noncontrolling interest holders.
~~(i)~~ This category includes consolidated fund of hedge funds that invests in multiple strategies to diversify risks. The fair values of the investments have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. The majority of the underlying funds can be redeemed as long as there are no restrictions in place. At March 31, 2013, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months.
Fair Value Option.    Upon the initial consolidation of certain CLOs, the Company elected to adopt the fair value option provisions for eligible assets and liabilities, including bank loans and borrowings of the CLOs to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplification. To the extent there is a difference between the change in fair value of the assets and liabilities, the difference will be reflected as net income (loss) attributable to nonredeemable ~~non-controlling~~noncontrolling interests on the condensed consolidated statements of income and offset by a change in appropriated retained earnings on the condensed consolidated statements of financial condition.
5.  Fair Value Disclosures (continued)

The following table summarizes information related to those assets and liabilities selected for fair value accounting as of ~~March 31,~~June 30, 2013 and December 31, 2012:

(in millions)        March 31,
2013        December 31,
2012        June 30,
2013        December 31,
2012
CLO Bank Loans:

Aggregate principal amounts outstanding
   $2,216       $2,124       $2,019       $2,124
Fair value
   2,222       2,110       2,003       2,110








Aggregate unpaid principal balance in excess of/(less than) fair value
   ($6)       $14       $16       $14








Unpaid principal balance of loans more than 90 days past due
   $5       $4       $4       $4
Aggregate fair value of loans more than 90 days past due
   -       -       -       -








Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due
   $5       $4       $4       $4








CLO Borrowings:

Aggregate principal amounts outstanding
   $2,455       $2,535       $2,274       $2,535
Fair value
   $2,332       $2,402       $2,145       $2,402
At ~~March 31,~~June 30, 2013, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2025.
During the three months ended ~~March 31,~~June 30, 2013 and 2012, the change in fair value of the bank loans and bonds held by the CLOs resulted in a ~~$72~~$7 million gain and a ~~$56~~$22 million gain, respectively, which were offset by a ~~$41~~$23 million loss and a ~~$67~~$7 million loss, respectively, from the change in fair value of the CLO borrowings.
During the six months ended June 30, 2013 and 2012, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $79 million gain and a $78 million gain, respectively, which were offset by a $64 million loss and a $74 million loss, respectively, from the change in fair value of the CLO borrowings.
The net gains (losses) were recorded in net gain (loss) on consolidated VIEs on the condensed consolidated statements of income.
The change in fair value of the assets and liabilities included interest income and expense, respectively.
6.  Variable Interest Entities
In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including ~~CDOs/~~collateralized debt obligations (“CDOs”)/CLOs and sponsored investment funds, which may be considered VIEs. The Company receives advisory fees and/or other incentive-related fees for its services and may from time to time own equity or debt securities or enter into derivatives with the vehicles, each of which are considered variable interests. The Company enters into these variable interests principally to address client needs through the launch of such investment vehicles. The VIEs are primarily financed via capital contributed by equity and debt holders. The Company’s involvement in financing the operations of the VIEs is generally limited to its equity interests.
6.  Variable Interest Entities (continued)
The primary beneficiary (“PB”) of a VIE that is an investment fund that meets the conditions of ASU 2010-10,Amendments to Statement 167 for Certain Investment Funds (“ASU 2010-10”), is the
~~6.  Variable Interest Entities (continued)~~
enterprise that has a variable interest (or combination of variable interests, including those of related parties) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns or both. In order to determine whether the Company is the PB of a VIE, management must make significant estimates and assumptions of probable future cash flows of the VIEs. Assumptions made in such analyses may include, but are not limited to, market prices of securities, market interest rates, potential credit defaults on individual securities or default rates on a portfolio of securities, pre-payments, realization of gains, liquidity or marketability of certain securities, discount rates and the probability of certain other outcomes.
The PB of a CDO/CLO or other entity that is a VIE that does not meet the conditions of ASU 2010-10 is the enterprise that has the power to direct activities of the entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the entity.
Consolidated VIEs. Consolidated VIEs included CLOs in which BlackRock did not have an investment; however, BlackRock, as the collateral manager, was deemed to have both the power to control the activities of the CLOs and the right to receive benefits that could potentially be significant to the CLOs. In addition, BlackRock was the PB of ~~several~~one investment ~~funds~~fund because it absorbed the majority of the variability due to its de facto third-party relationships with other partners in the ~~funds.~~fund. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company. At ~~March 31,~~June 30, 2013 and December 31, 2012, the following balances related to VIEs were consolidated on the condensed consolidated statements of financial condition:

(in millions)        March 31, 2013            December 31, 2012            June 30, 2013            December 31, 2012
Assets of consolidated VIEs:

Cash and cash equivalents
               $290                   $297                   $125                   $297
Bank loans
   2,222       2,110       2,003       2,110
Bonds
   139       124       95       124
Other investments
   153       30
Other investments and other assets
   62       30








Total bank loans, bonds and other investments
   2,514       2,264
Total bank loans, bonds, other investments and other assets
   2,160       2,264
Liabilities of consolidated VIEs:

Borrowings
   (2,332)       (2,402)       (2,145)       (2,402)
Other liabilities
   (275)       (103)       (93)       (103)
Appropriated retained earnings
   (55)       (29)       (23)       (29)
Non-controlling interests of consolidated VIEs
   (142)       (27)
Noncontrolling interests of consolidated VIEs
   (24)       (27)








Total BlackRock net interests in consolidated VIEs
   $—       $—       $—       $—








For the three months ended ~~March 31,~~June 30, 2013 and 2012, the Company recorded a non-operating loss of $23 million and non-operating income of $11 million, respectively, offset by a $23 million net loss attributable to nonredeemable noncontrolling interests and $11 million net income attributable to nonredeemable noncontrolling interests, respectively, on the condensed consolidated statements of income.
6.  Variable Interest Entities (continued)
For the six months ended June 30, 2013 and 2012, the Company recorded non-operating income of ~~$27~~$4 million and a non-operating loss of ~~$12~~$1 million, respectively, offset by ~~$27~~$4 million net income attributable to nonredeemable ~~non-controlling~~noncontrolling interests and a ~~$12~~$1 million net loss attributable to nonredeemable ~~non-controlling~~noncontrolling interests, respectively, on the condensed consolidated statements of income.
At ~~March 31,~~June 30, 2013 and December 31, 2012, the weighted-average maturities of the bank loans and bonds attributable to consolidated VIEs were approximately ~~4.7~~4.8 and 4.5 years, respectively.
~~6.  Variable Interest Entities (continued)~~
Non-Consolidated ~~VIEs~~VIEs..    At ~~March 31,~~June 30, 2013 and December 31, 2012, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs for which it was the sponsor or in which it held a variable interest, but for which it was not the PB, were as follows:

(in millions)    Variable Interests on the Condensed
Consolidated
Statement of Financial Condition
At March 31, 2013    Investments    Advisory
Fee
Receivables    Other Net
Assets
(Liabilities)    Maximum
Risk of Loss⁽¹⁾
CDOs/CLOs
   $                 1       $                 2       ($5)       $                 20
Other sponsored investment funds:

Collective trusts
   —      206       —      206
Other
   18       78       —         96








Total
   $ 19       $ 286       ($5)       $ 322








At December 31, 2012

CDOs/CLOs
   $ 1       $ 1       ($5)       $ 19
Other sponsored investment funds:

Collective trusts
   —      248       —      248
Other
   17       61       (3)       77








Total
   $ 18       $ 310       ($8)       $ 344








(in millions) Variable Interests on the Condensed
Consolidated
Statement of Financial Condition
At June 30, 2013 Investments Advisory
Fee
Receivables Other Net
Assets
(Liabilities) Maximum
Risk of Loss⁽¹⁾
CDOs/CLOs
$                 1    $                 1    ($5 ) $                 19
Other sponsored investment funds:

Collective trusts
—   169    —   169
Other
18    98    (6 ) 116

Total
$ 19    $ 268    ($11 ) $ 304

At December 31, 2012

CDOs/CLOs
$ 1    $ 1    ($5 ) $ 19
Other sponsored investment funds:

Collective trusts
—   248    —   248
Other
17    61    (3 ) 77

Total
$ 18    $ 310    ($8 ) $ 344

⁽¹⁾
At both ~~March 31,~~June 30, 2013 and December 31, 2012, BlackRock’s maximum risk of loss associated with these VIEs primarily related to: (i) advisory fee receivables; (ii) BlackRock’s investments; and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.
The net assets related to the above CDOs/CLOs and other sponsored investment funds, including collective trusts, that the Company does not consolidate were as follows:
CDOs/CLOs

(in billions)        March 31, 2013            December 31, 2012
Assets at fair value
   $4       $4
Liabilities⁽¹⁾
   5       5




Net assets
   ($1)       ($1)




(in billions)        June 30, 2013            December 31, 2012
Assets at fair value
   $3       $4
Liabilities⁽¹⁾
   4       5




Net assets
   ($1)       ($1)




⁽¹⁾
Amounts primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.
Other sponsored investments funds. Net assets of other sponsored investment funds that are non-consolidated VIEs approximated $1.5 trillion to $1.6 trillion at both ~~March 31,~~June 30, 2013 and December 31, 2012. Net assets included $1.3 trillion of collective trusts at ~~March 31,~~June 30, 2013 and
6.  Variable Interest Entities (continued)
December 31, 2012. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts. The net assets of these VIEs primarily are comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.
7. Derivatives and Hedging
In May 2011, the Company entered into a designated cash flow hedge consisting of a $750 million interest rate swap maturing in 2013 to hedge future cash flows on the Company’s floating rate notes due in 2013. Interest on this swap iswas at a fixed rate of 1.03%, payable semi-annually on May 24 and November 24 of each year. ~~The fair value of~~During the second quarter 2013, the interest rate swap ~~at March 31, 2013~~matured and ~~December 31, 2012 was not material.~~the floating rate notes were fully repaid.
The Company maintains a program to enter into ~~total return~~ swaps to hedge against market price and interest rate exposures with respect to certain seed investments in sponsored investment products. At ~~both March 31,~~June 30, 2013, the Company had 12 outstanding total return swaps and four outstanding interest rate swaps with an aggregate notional value of approximately $80 million and $68 million, respectively. At December 31, 2012, the Company had 21 outstanding total return swaps ~~respectively,~~ with an aggregate notional value of approximately ~~$127 million and~~ $206 ~~million, respectively.~~million. The fair value of the outstanding ~~total return~~ swaps at ~~March 31,~~June 30, 2013 and December 31, 2012 was not material.
Market risk from forward foreign currency exchange contracts is the effect on the value of a financial instrument that results from a change in currency exchange rates. The Company manages certain exposure to market risk associated with foreign currency exchange contracts by establishing and monitoring parameters that limit the types and degrees of market risk that may be undertaken. At ~~March 31,~~June 30, 2013 and December 31, 2012, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately ~~$66~~$105 million and $79 million, respectively. The fair value of the forward foreign currency exchange contracts at ~~March 31,~~June 30, 2013 and December 31, 2012 was not ~~material.~~material to the condensed consolidated statements of financial condition.
The Company entered into a credit default swap, providing credit protection to ~~the~~a counterparty of approximately $17 million, representing the Company’s maximum risk of loss with respect to the provision of credit protection. The Company carries the credit default swap at fair value based on the expected future cash flows under the arrangement. The fair value of the credit default swap was $5 million at both ~~March 31,~~June 30, 2013 and December 31, 2012 and was included in other liabilities on the condensed consolidated statements of financial condition.
Gains (losses) on total return swaps are recorded in non-operating income (expense) on the condensed consolidated statements of income and were ~~($7)~~$2 million and ($~~12)~~5) million for the three and six months ended ~~March 31,~~June 30, 2013, respectively, and were $9 million and ($3) million for the three and six months ended June 30, 2012, respectively.
Gains (losses) on the interest rate swap, forward foreign currency exchange contracts and credit default swap were ~~immaterial~~not material to the condensed consolidated statements of income for the three and six months ended ~~March 31,~~June 30, 2013 and 2012.
The Company consolidates certain sponsored investment funds, which may utilize derivative instruments as a part of the funds’ investment strategies. The fair value of such derivatives at ~~March 31,~~June 30, 2013 and December 31, 2012 was not material. The change in fair value of such derivatives, which is recorded in non-operating income (expense), was not material for the three and six months ended ~~March 31,~~June 30, 2013 and 2012.
8.  Goodwill
Goodwill activity during the ~~three~~six months ended ~~March 31,~~June 30, 2013 was as follows:

(in millions)
December 31, 2012
               $12,910
Goodwill adjustment related to Quellos and other⁽¹⁾
   ~~(6)~~(11)


~~March 31,~~June 30, 2013
   $~~12,904~~12,899


⁽¹⁾
The decrease in goodwill during the ~~three~~six months ended ~~March 31,~~June 30, 2013 primarily resulted from a decline related to tax benefits realized from tax-deductible goodwill in excess of book goodwill from the acquisition of the fund-of-funds business of Quellos Group, LLC in October 2007 (the “Quellos Transaction”). Goodwill related to the Quellos Transaction will continue to be reduced in future periods by the amount of tax benefits realized from tax-deductible goodwill in excess of book goodwill from the Quellos Transaction. The balance of the Quellos tax-deductible goodwill in excess of book goodwill was approximately ~~$316~~$308 million and $324 million at ~~March 31,~~June 30, 2013 and December 31, 2012, respectively.
9. Intangible Assets
The carrying amounts of identifiable intangible assets are summarized as follows:

(in millions)    Indefinite-lived
intangible assets    Finite-lived
intangible assets    Total
intangible assets    Indefinite-lived
intangible assets    Finite-lived
intangible assets    Total
intangible assets
December 31, 2012
               $16,760                       $642                   $17,402                   $16,760                   $642                   $17,402
Amortization expense
   —       (40)       (40)       —       (80)       (80)












March 31, 2013
   $16,760       $602       $17,362
June 30, 2013
   $16,760       $562       $17,322












10. Other Assets
At March 31, 2013, BlackRock held an approximately one-third economic equity interest in Private National Mortgage Acceptance Company, LLC (“PNMAC”), which is accounted for as an equity method investment and is included in other assets on the condensed consolidated statements of financial condition. On May 8, 2013, PennyMac became the sole managing member of PNMAC in connection with an initial public offering of PennyMac (the “PennyMac IPO”). As a result of the PennyMac IPO, BlackRock recorded a non-cash, non-operating pre-tax gain of $39 million related to the carrying value of its equity method investment.
Subsequent to the PennyMac IPO, the Company contributed 6.1 million units of its PennyMac investment to a new donor advised fund (the “Charitable Contribution”). The fair value of the Charitable Contribution was $124 million and is included in general and administration expenses on the condensed consolidated statements of income. In connection with the Charitable Contribution, the Company also recorded a non-cash, non-operating pre-tax gain of $80 million related to the contributed investment and a tax benefit of approximately $57 million.
The carrying value and fair value of the Company’s remaining interest (approximately 20% or 16 million units) in PennyMac was approximately $111 million and $331 million, respectively, at June 30, 2013.
11.  Borrowings
Short-Term Borrowings
2013 Revolving Credit Facility.In March 2013, the Company’s credit facility was amended to extend the maturity date by one year to March 2018 and the amount of the aggregate commitment
11.  Borrowings (continued)
Short-Term Borrowings (continued)
was increased to $3.990 billion (the “2013 credit facility”). The 2013 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2013 credit facility to an aggregate principal amount not to exceed $4.990 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2013 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at ~~March 31,~~June 30, 2013. At ~~March 31,~~June 30, 2013, the Company had no amount outstanding under the 2013 credit facility.
Commercial Paper Program.In April 2013, BlackRock increased the maximum aggregate amount for which the Company could issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time of $3.990 billion. The commercial paper program is currently supported by the 2013 credit facility.
~~As of March 31,~~At June 30, 2013, ~~and December 31, 2012,~~ BlackRock had no CP Notes outstanding.
~~10.  Borrowings (continued)~~
Long-Term Borrowings
The carrying value and fair value of long-term borrowings determined using market prices at the end of ~~March~~June 2013 included the following:

(in millions)   Maturity Amount
Unamortized
Discount
Carrying Value Fair Value   Maturity Amount
Unamortized
Discount
Carrying Value Fair Value

Floating Rate Notes due 2013
$750    $ —    $750    $750
3.50% Notes due 2014
1,000    —    1,000    1,051    $1,000    $ —    $1,000    $1,037
1.375% Notes due 2015
750    —    750    764    750    —    750    760
6.25% Notes due 2017
700    (3)    697    852    700    (2)    698    824
5.00% Notes due 2019
1,000    (2)    998    1,180    1,000    (2)    998    1,139
4.25% Notes due 2021
750    (4)    746    843    750    (4)    746    797
3.375% Notes due 2022
750    (4)    746    794    750    (4)    746    751

Total Long-term Borrowings
$  5,700    ($13)    $  5,687    $  6,234    $  4,950    ($12)    $  4,938    $  5,308

In May 2013, the Company fully repaid $750 million of floating rate notes at maturity.
Long-term borrowings at December 31, 2012 had a carrying value of $5.687 billion and a fair value of $6.275 billion determined using market prices at the end of December 2012.
See Note 11,Borrowings, in the 2012 Form 10-K for more information.
~~11.~~12.    Commitments and Contingencies
Investment Commitments.    At ~~March 31,~~June 30, 2013, the Company had ~~$217~~$219 million of various capital commitments to fund sponsored investment funds, including funds of private equity funds, real estate funds, infrastructure funds, opportunistic funds and distressed credit funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party ~~non-controlling~~noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the
12.    Commitments and Contingencies (continued)
expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company, but which are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.
Contingencies
Contingent Payments.    The Company acts as the portfolio manager in a series of credit default swap transactions and has a maximum potential exposure of $17 million under a credit default swap between the Company and the counterparty. See Note 7,Derivatives and Hedging, for further discussion.
Legal Proceedings.    From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which potentially could harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.
~~11.  Commitments and Contingencies (continued)~~
~~Contingencies (continued)~~
Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position, or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.
Indemnifications.In the ordinary course of business or in connection with certain acquisition agreements, BlackRock enters into contracts pursuant to which it may agree to indemnify third parties in certain circumstances. The terms of these indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined or is considered remote. Consequently, no liability has been recorded on the condensed consolidated statements of financial condition.
In connection with securities lending transactions, BlackRock has issued certain indemnifications to certain securities lending clients against potential loss resulting from a borrower’s failure to fulfill its obligations under the securities lending agreement should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligation under the securities lending agreement. At ~~March 31,~~June 30, 2013, the Company indemnified certain of its clients for their securities lending loan balances of approximately ~~$101.2~~$101.1 billion. The Company held as agent, cash and securities totaling ~~$106.4~~$106.5 billion as collateral for indemnified securities on loan at ~~March 31,~~June 30, 2013. The fair value of these indemnifications was not material at ~~March 31,~~June 30, 2013.
~~12.~~13.  Stock-Based Compensation
Restricted stock and restricted stock units (“RSUs”) activity for the ~~three~~six months ended ~~March 31,~~June 30, 2013 is summarized below:

Outstanding at
   Restricted
Stock and
RSUs    Weighted-
Average
Grant Date
Fair Value    Restricted
Stock and
RSUs    Weighted-
Average
Grant Date
Fair Value
December 31, 2012
                   5,620,835               $197.90                       5,620,835               $197.90
Granted
   1,559,324       $232.47       1,629,460       $234.22
Converted
   (2,313,218)       $205.19       (2,356,276)       $205.10
Forfeited
   (14,258)       $196.79       (44,528)       $201.92





March 31, 2013⁽¹⁾
   4,852,683       $205.53
June 30, 2013⁽¹⁾
   4,849,491       $206.56






⁽¹⁾
At ~~March 31,~~June 30, 2013, approximately ~~4.5~~4.4 million awards are expected to vest and ~~0.3~~0.4 million awards have vested but have not been converted.
The Company values restricted stock and RSUs at their grant-date fair value as measured by BlackRock’s common stock price.
In January 2013, the Company granted 1,172,381 RSUs to employees as part of annual incentive compensation that vest ratably over three years from the date of grant and 370,812 RSUs to employees that cliff vest 100% on January 31, 2016.
~~At March 31, 2013, the~~The intrinsic value of outstanding RSUs was $1.2 ~~billion.~~
~~12.  Stock-Based Compensation (continued)~~
billion reflecting a stock price of $256.85 at June 30, 2013.
At ~~March 31,~~June 30, 2013, total unrecognized stock-based compensation expense related to unvested RSUs was ~~$532~~$448 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of ~~1.5~~1.1 years.
Market Performance-based RSUs.
Market performance-based RSU activity for the ~~three~~six months ended ~~March 31,~~June 30, 2013 is summarized below:

Outstanding at
   Market
Performance-
Based RSUs    Weighted-

Average
Grant Date
Fair Value    Market
Performance-
Based RSUs    Weighted-
Average
Grant Date
Fair Value
December 31, 2012
               575,532       $ 115.03                   575,532       $ 115.03
Granted
   556,581       $ 126.76       556,581       $ 126.76





March 31, 2013⁽¹⁾
   1,132,113       $ 120.80
June 30, 2013⁽¹⁾
   1,132,113       $ 120.80






⁽¹⁾
At ~~March 31,~~June 30, 2013, approximately 1.1 million awards are expected to vest and no awards have vested and have been converted.
The 556,581 market performance-based RSUs that the Company granted in January 2013 will be funded primarily by shares currently held by PNC (seeLong-Term Incentive Plans Funded by PNC below).
At ~~March 31,~~June 30, 2013, total unrecognized stock-based compensation expense related to unvested market performance-based awards was ~~$114~~$105 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted-average period of ~~3.3~~3.1 years.
13.  Stock-Based Compensation (continued)
Market Performance-based RSUs (continued)
Long-Term Incentive Plans Funded by PNC.Under a share surrender agreement, PNC committed to provide up to 4 million shares of BlackRock stock held by PNC, to fund certain BlackRock long-term incentive plans (“LTIP”). The current share surrender agreement commits PNC to provide BlackRock series C non-voting participating preferred stock to fund the remaining committed shares. ~~During 2007 through 2011, approximately~~As of December 31, 2012, 2.5 million shares ~~were~~had been surrendered by ~~PNC and in~~PNC. In January 2013, 0.2 million shares were surrendered.
At ~~March 31,~~June 30, 2013, the remaining shares committed by PNC of ~~approximately~~ 1.3 million were available to fund future long-term incentive awards.
Stock Options.Stock option activity for the ~~three~~six months ended ~~March 31,~~June 30, 2013 is summarized below:

Outstanding at Shares Under
Option Weighted-
Average
Exercise
Price Shares Under
Option Weighted-
Average
Exercise
Price
December 31, 2012       1,099,909    $ 167.76          1,099,909    $ 167.76
Exercised (21,032)    $ 167.76    (85,090)    $ 167.76

March 31, 2013⁽¹⁾             1,078,877    $ 167.76
June 30, 2013             1,014,819    $ 167.76

⁽¹⁾
~~At March 31, 2013, all options were vested. The aggregate intrinsic value of options exercised during the three months ended March 31, 2013 was $1.5~~All options were vested at both June 30, 2013 and December 31, 2012. The aggregate intrinsic value of options exercised during the six months ended June 30, 2013 was $8.3 million.
~~13.~~14.  Net Capital Requirements
The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.
Capital Requirements.    At ~~March 31,~~June 30, 2013, the Company was required to maintain approximately ~~$1,179~~$1,160 million in net capital in certain regulated subsidiaries, including BlackRock Institutional Trust Company, N.A. (a chartered national bank whose powers are limited to trust activities and which is subject to regulatory capital requirements administered by the Office of the Comptroller of the Currency), entities regulated by the Financial ~~Services Authority (Financial~~ Conduct Authority and Prudential Regulation Authority ~~as of April 1, 2013)~~ in the United Kingdom and the Company’s broker-dealers and was in compliance with all applicable regulatory net capital requirements.
~~14.~~15.  Accumulated Other Comprehensive Income (Loss)
The following table presents changes in AOCI by component for the three and six months ended ~~March 31,~~June 30, 2013:

(in millions) Unrealized gains
and (losses) on
available-for-sale
investments    Benefit plans    Foreign
currency
translation
adjustments    Total ⁽¹⁾ Unrealized gains
(losses) on
available-for-sale
investments    Benefit plans    Foreign
currency
translation
adjustments    Total ⁽¹⁾
December 31, 2012
$16       ($4 )    ($71)       ($59 )
March 31, 2013
$17       ($4 )    ($179 )    ($166 )
Other comprehensive income (loss) before reclassifications(2)
4       -       (108 )    (104 ) (21 )    -       (23 )    (44 )
Amount reclassified from AOCI⁽²⁾⁽³⁾
(3 )    -       -       (3 ) 12       -       -       12













Net other comprehensive income (loss) for the three months ended March 31, 2013
1       -       (108 )    (107 )
Net other comprehensive income (loss) for the three months ended June 30, 2013
(9 )    -       (23 )    (32 )













March 31, 2013
$17       ($4 )    ($179 )    ($166 )
June 30, 2013
$8       ($4 )    ($202 )    ($198 )













(in millions) Unrealized gains
(losses) on
available-for-sale
investments    Benefit plans    Foreign
currency
translation
adjustments    Total ⁽¹⁾
December 31, 2012
$16       ($4 )    ($71 )    ($59 )
Other comprehensive income (loss) before reclassifications⁽²⁾
(17 )    -       (131 )    (148 )
Amount reclassified from AOCI⁽³⁾
9       -       -       9







Net other comprehensive income (loss) for the six months ended June 30, 2013
(8 )    -       (131 )    (139 )







June 30, 2013
$8       ($4 )    ($202 )    ($198 )







⁽¹⁾
All amounts are net of tax.
⁽²⁾
~~Amount related to realized gains (losses) on available-for-sale investments, net of~~The tax benefit (expense) ~~of $1~~related to available-for-sale investments was $8 million and $7 million for the three and six months ended June 30, 2013, respectively.
⁽³⁾
The tax benefit (expense) related to available-for-sale investments was ($6) million and ($4) million for the three and six months ended June 30, 2013, respectively. The pre-tax amount reclassified from AOCI towas included in net gain (loss) on investments on the condensed consolidated ~~statement~~statements of ~~income during the three months ended March 31, 2013.~~income.
~~15.~~16.  Capital Stock
Non-voting Participating Preferred Stock.    The Company’s preferred shares authorized, issued and outstanding consisted of the following:

   March 31,
2013    December 31,
2012    June 30,
2013    December 31,
2012
Series A

Shares authorized, $0.01 par value
   20,000,000       20,000,000       20,000,000       20,000,000
Shares issued and outstanding
   -       -       -       -
Series B

Shares authorized, $0.01 par value
   150,000,000       150,000,000       150,000,000       150,000,000
Shares issued and outstanding
   823,188       823,188       823,188       823,188
Series C

Shares authorized, $0.01 par value
   6,000,000       6,000,000       6,000,000       6,000,000
Shares issued and outstanding
   1,311,887       1,517,237       1,311,887       1,517,237
Series D

Shares authorized, $0.01 par value
   20,000,000       20,000,000       20,000,000       20,000,000
Shares issued and outstanding
   -       -       -       -
Share Repurchase Approval.In January 2013, the Board of Directors approved an increase in the availability under the Company’s existing share repurchase program to allow for the repurchase of up to 10.2 million shares of BlackRock common ~~stock.The~~stock. The Company repurchased ~~1.0~~1.9 million common shares in open market transactions under the share repurchase program for approximately ~~$250~~$500 million during the ~~three~~six months ended ~~March 31,~~June 30, 2013. At ~~March 31,~~June 30, 2013, there were ~~9.2~~8.3 million shares still authorized to be repurchased.
~~16.~~17.  Earnings Per Share
Prior to the quarter ended March 31, 2013, the Company calculated earnings per share (“EPS”) pursuant to the two-class method as defined in ASC 260-10,Earnings per Share (“ASC 260-10”), which specifies that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends or dividend equivalents are considered participating securities and should be included in the computation of EPS pursuant to the two-class method. The majority of the Company’s participating securities vested in January 2013 and, therefore, beginning in the quarter ended March 31, 2013, the Company calculates EPS under the treasury stock method.
Due to the similarities in terms between BlackRock non-voting participating preferred stock and the Company’s common stock, the Company considers its participating preferred stock to be a common stock equivalent for purposes of EPS calculations. As such, the Company has included the outstanding non-voting participating preferred stock in the calculation of average basic and diluted shares outstanding.
~~16.~~17.  Earnings Per Share (continued)

The following table sets forth the computation of basic and diluted EPS for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2013 under the treasury stock method:

~~(in millions, except per share data)~~ ~~Three Months~~
~~Ended~~
~~March 31,~~
~~2013~~
~~Net income attributable to BlackRock~~
~~$632~~
~~Basic weighted-average shares outstanding~~
~~171,301,800~~
~~Dilutive effect of:~~
~~Non-participating RSUs and stock options~~
~~3,259,332~~
~~Total diluted weighted-average shares~~
~~outstanding~~
~~174,561,132~~
~~Basic earnings per share~~
~~$3.69~~
~~Diluted earnings per share~~
~~$3.62~~

(in millions, except per share data) Three Months
Ended
June 30,
2013    Six Months
Ended
June 30,
2013
Net income attributable to BlackRock
$729       $1,361
Basic weighted-average shares outstanding
170,648,731       170,973,462
Dilutive effect of:

Non-participating RSUs and stock options
3,224,852       3,295,408



Total diluted weighted-average shares outstanding
173,873,583       174,268,870



Basic earnings per share
$4.27       $7.96
Diluted earnings per share
$4.19       $7.81
The following table sets forth the computation of basic and diluted EPS for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2012 under the two-class method:

~~(in millions, except per share data)~~ ~~Three Months~~
~~Ended~~
~~March 31,~~
~~2012~~
~~Net income attributable to BlackRock~~
~~$572~~
~~Less:~~
~~Dividends distributed to common shares~~
~~285~~
(in millions, except per share data) Three Months
Ended
June 30,
2012    Six Months
Ended
June 30,
2012
Net income attributable to BlackRock
$554       $1,126
Less:

Dividends distributed to common shares
260       544
Dividends distributed to participating RSUs
-       1



Undistributed net income attributable to BlackRock
294       581
Percentage of undistributed net income allocated to common shares⁽¹⁾
99.9%       99.9%
Undistributed net income allocated to common shares
294       581
Plus:

Common share dividends
260       544



Net income attributable to common shares
$554       $1,125



Basic weighted-average shares outstanding
177,010,239       178,016,539
Dilutive effect of:

Non-participating RSUs and stock options
2,580,463       2,736,976



Total diluted weighted-average shares outstanding
179,590,702       180,753,515



Basic earnings per share
$3.13       $6.32
Diluted earnings per share
$3.08       $6.22

~~Undistributed net income attributable to BlackRock~~
~~287~~
~~Percentage of undistributed net income allocated to common shares~~⁽¹⁾
~~99.8%~~
~~Undistributed net income allocated to common shares~~
~~286~~
~~Plus:~~
~~Common share dividends~~
~~285~~
~~Net income attributable to common shares~~
~~$571~~
~~Basic weighted-average shares outstanding~~
~~179,022,840~~
~~Dilutive effect of:~~
~~Non-participating RSUs and stock options~~
~~2,895,024~~
~~Total diluted weighted-average shares outstanding~~
~~181,917,864~~
~~Earnings per basic share attributable to BlackRock common stockholders~~
~~$3.19~~
~~Earnings per dilutive share attributable to BlackRock common stockholders~~
~~$3.14~~

⁽¹⁾
Allocation to common stockholders was based on the total of common shares and participating ~~security stockholders~~securities (which represent unvested RSUs that contain nonforfeitable rights to dividends). For the three months and six months ended ~~March 31,~~June 30, 2012, average outstanding participating securities were 0.2 million.
~~17.~~18.  Income Taxes
The three and six months ended June 30, 2013 included the approximately $57 million tax benefit recognized in connection with the Charitable Contribution. See Note 10,Other Assets, for more information. In addition, the current period included a tax benefit of approximately $29 million, primarily due to the realization of loss carryforwards.
19.  Segment Information
The Company’s management directs BlackRock’s operations as one business, the asset management business. As such, the Company operates in one business segment in accordance with ASC 280-10,Segment Reporting.
The following table illustrates investment advisory, administration fees, securities lending revenue and performance fees,BlackRock Solutions^® and advisory revenue, distribution fees and other revenue for the three and six months ended ~~March 31,~~June 30, 2013 and 2012, respectively.

   Three Months Ended
March 31,    Three Months Ended
June 30,    Six Months Ended
June 30,
(in millions)    2013       2012      2013        2012        2013        2012
Equity
   $ 1,161          $ 1,068       $ 1,194       $ 1,055       $ 2,355       $ 2,123
Fixed income
   486          433       512       462       998       895
Multi-asset class
   255          246
Multi-asset
   256       237       511       483
Alternatives
   249          221       221       189       470       410
Cash management
   86          89       83       88       169       177












Total investment advisory, administration fees, securities lending revenue and performance fees
   2,237          2,057       2,266       2,031       4,503       4,088
BlackRock Solutions and advisory
   126          123       138       131       264       254
Distribution fees
   17          19       18       20       35       39
Other revenue
   69          50       60       47       129       97












Total revenue
   $ 2,449          $ 2,249       $ 2,482       $ 2,229       $ 4,931       $ 4,478












The following table illustrates ~~the Company’s~~ total revenue for the three and six months ended ~~March 31,~~June 30, 2013 and 2012, respectively, by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the customer resides.

(in millions)    Three Months Ended
March 31,    Three Months Ended
June 30,    Six Months Ended
June 30,
Revenue
   2013       2012      2013        2012        2013        2012
Americas
   $ 1,663          $ 1,566       $ 1,672       $ 1,533       $ 3,335       $ 3,099
Europe
   648          572       686       591       1,334       1,163
Asia-Pacific
   138          111       124       105       262       216












Total revenue
   $ 2,449          $ 2,249       $ 2,482       $ 2,229       $ 4,931       $ 4,478












~~17.~~19.  Segment Information (continued)

The following table illustrates ~~the Company’s~~ long-lived assets that consist of goodwill and property and equipment at ~~March 31,~~June 30, 2013 and December 31, 2012 by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.

(in millions)       March 31,
2013       December 31,
2012       June 30,
2013       December 31,
2012
Long-lived Assets

Americas
      $ 13,224                $ 13,238          $ 13,215                $ 13,238
Europe
      149          166          149          166
Asia-Pacific
      60          63          59          63








Total long-lived assets
      $ 13,433                $ 13,467          $ 13,423                $ 13,467








Americas primarily ~~comprises~~is comprised of the United States, Canada, Brazil and Mexico, while Europe is primarily ~~comprises~~comprised of the United Kingdom. Asia-Pacific is primarily ~~comprises~~comprised of Japan, Australia and Singapore.
~~18.~~20.  Subsequent Events
~~At March 31,~~Tax Legislation in the United Kingdom
In July 2013, ~~BlackRock held an approximately one-third economic equity interest~~the United Kingdom enacted legislation reducing corporate income taxes. The legislation will result in ~~Private National Mortgage Acceptance Company, LLC (“PennyMac”),~~a revaluation of certain deferred tax assets and liabilities, which ~~is accounted for as an equity method investment.~~
~~On May 8, 2013, PennyMac Financial Services, Inc. became a holding company of PennyMac~~will result in ~~an initial public offering (“PennyMac IPO”). As a result of the PennyMac IPO, BlackRock will adjust the carrying value of its equity method investment in PennyMac and record~~ a non-cash ~~non-operating pre-tax gain of approximately $40 million~~income tax benefit in the ~~second~~third quarter of 2013.
~~In addition to~~ At this time, the ~~subsequent events included in~~Company is still evaluating the ~~notes~~impact to the condensed consolidated financial ~~statements,~~statements.
Acquisitions
MGPA. In May 2013, the Company announced that it agreed to acquire MGPA, an independently-managed private equity real estate investment advisory company in Asia-Pacific and Europe. The transaction is expected to close in the third quarter 2013, subject to customary regulatory approvals and closing conditions.
Credit Suisse ETF. In July 2013, the Company completed the acquisition of Credit Suisse’s ETF franchise. The financial impact of the transaction is not expected to be material to the condensed consolidated financial statements.
Other
The Company conducted a review for additional subsequent events and determined that no additional subsequent events had occurred that would require accrual or disclosure.

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This report, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.
BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.
In addition to risk factors previously disclosed in BlackRock’s Securities and Exchange Commission (“SEC”) reports and those identified elsewhere in this report, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock’s investment products; (4) the impact of increased competition; (5) the impact of future acquisitions or divestitures; (6) the unfavorable resolution of legal proceedings; (7) the extent and timing of any share repurchases; (8) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (9) the impact of legislative and regulatory actions and reforms, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock or The PNC Financial Services Group, Inc. (“PNC”); (10) terrorist activities, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (11) the ability to attract and retain highly talented professionals; (12) fluctuations in the carrying value of BlackRock’s economic investments; (13) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (14) BlackRock’s success in maintaining the distribution of its products; (15) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (16) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.
Overview
BlackRock, Inc. (“BlackRock” or the “Company”) is the world’s largest ~~publicly-traded~~publicly traded investment management firm. BlackRock has portfolio managers located around the world, including the United States, the United Kingdom, the Netherlands, Japan, Hong Kong, Singapore, Australia and Germany. At ~~March 31,~~June 30, 2013, the Company managed ~~$3.936~~$3.857 trillion of assets under management (“AUM”) on behalf of institutional and individual investors worldwide. The Company provides a wide array of products, including passively and actively managed products in various equity, fixed income, multi-asset, ~~class,~~ alternative investment and cash management products. BlackRock offers clients diversified access to global markets through separate accounts, collective investment trusts, open-end and closed-end mutual funds, exchange-traded products, hedge funds and funds of funds. BlackRock also provides global advisory services for private investment funds and retail products. The Company’s non-U.S. investment funds are based in a number of domiciles and cover a range of asset classes, including equities, fixed income, cash management and alternatives. In addition,BlackRock Solutions^® provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.
In the United States, retail offerings include various open-end and closed-end funds, includingiShares^®, the global product leader in exchange-traded products for institutional, retail and high net worth (“HNW”) investors.iSharesAUM totaled ~~$802.8~~$774.4 billion at ~~March 31,~~June 30, 2013. The BlackRock Global Funds, the Company’s primary retail fund group offered outside the United States, are authorized for distribution in 35 jurisdictions worldwide. Additional fund offerings include structured products, real estate funds, hedge funds, hedge funds of funds, private equity funds and funds of funds, and managed futures funds. These products are sold to both U.S. and non-U.S. HNW, retail and institutional investors in a wide variety of active and passive strategies covering equity, fixed income and alternative assets.
BlackRock’s client base consists of financial institutions and other corporate clients, pension plans, charities, official institutions, such as central banks, sovereign wealth funds, supranational authorities and other government entities, HNW individuals and retail investors around the world. BlackRock maintains a significant sales and marketing presence both inside and outside the United States that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships, including the distribution of BlackRock products and services through Merrill Lynch under a global distribution agreement in effect until January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met.
On ~~March 31,~~June 30, 2013, PNC held ~~20.7%~~20.8% of the Company’s voting common stock and ~~21.7%~~21.8% of the Company’s capital stock, which includes outstanding common and non-voting preferred stock.
Executive Summary

   Three Months Ended
March 31, Three Months Ended
June 30, Six Months Ended
June 30,
(in millions, except per share data)    2013 2012 2013 2012 2013 2012
GAAP basis:

Total revenue
   $ 2,449        $ 2,249        $ 2,482     $ 2,229     $ 4,931     $ 4,478
Total expenses
   1,540        1,434        1,633     1,400     3,173     2,834


Operating income
   $ 909        $ 815        $ 849     $ 829     $ 1,758     $ 1,644
Operating margin
   37.1%    36.2%    34.2%    37.2%    35.7%    36.7%
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾
   7        20
Non-operating income (expense), less net income (loss) attributable to noncontrolling interests⁽¹⁾
92     (46)    99     (26)
Income tax expense
   (284)       (263)       (212)    (229)    (496)     (492)


Net income attributable to BlackRock
   $ 632        $ 572        $ 729     $ 554     $ 1,361     $ 1,126


Diluted EPS components:

Operating income
   $ 3.59        $ 3.06
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾
   0.03        0.08


Diluted earnings per common share
   $ 3.62        $ 3.14        $ 4.19     $ 3.08     $ 7.81     $ 6.22
Effective tax rate
   31.0%    31.5%    22.5%    29.3%    26.7%    30.4%
As adjusted⁽²⁾:

Total revenue
   $ 2,449        $ 2,249        $ 2,482     $ 2,229     $ 4,931     $ 4,478
Total expenses
   1,528        1,424        1,500     1,397     3,028     2,821


Operating income
   $ 921        $ 825        $ 982     $ 832     $ 1,903     $ 1,657
Operating margin
   40.0%    38.6%    41.3%    39.2%    40.6%    38.9%
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾
   3        15
Non-operating income (expense), less net income (loss) attributable to noncontrolling interests⁽¹⁾
12     (43)    15     (28)
Income tax expense
   (287)       (265)       (272)    (231)    (559)    (496)


Net income attributable to BlackRock
   $ 637        $ 575        $ 722     $ 558     $ 1,359     $ 1,133


Diluted EPS components:

Operating income
   $ 3.64        $ 3.10
Non-operating income (expense), less net income (loss) attributable to non-controlling interests⁽¹⁾
   0.01        0.06


Diluted earnings per common share
   $ 3.65        $ 3.16        $ 4.15     $ 3.10     $ 7.80     $ 6.26
Effective tax rate
   31.0%    31.5%    27.3%    29.3%    29.1%    30.4%
Other:

Assets under management (end of period)
   $ 3,936,409        $ 3,684,087        $ 3,857,007     $ 3,559,934     $ 3,857,007     $ 3,559,934
Diluted weighted-average common shares outstanding⁽³⁾
   174,561,132        181,917,864        173,873,583     179,590,702     174,268,870     180,753,515
Shares outstanding (end of period)
   171,102,532        179,406,494        170,285,093     172,901,037     170,285,093     172,901,037
Book value per share⁽⁴⁾
   $ 147.81        $ 140.72        $ 150.14     $ 142.29     $ 150.14     $ 142.29
Cash dividends declared and paid per share
   $ 1.68        $ 1.50        $ 1.68     $ 1.50     $ 3.36     $ 3.00

⁽¹⁾
Net of net income (loss) attributable to ~~non-controlling~~noncontrolling interests (“NCI”) (redeemable and ~~nonredeemable)~~non-redeemable).
⁽²⁾
As adjusted items are described in more detail inNon-GAAP Financial Measures.
⁽³⁾
Non-voting participating preferred ~~shares are~~stock is considered to be a common stock ~~equivalents~~equivalent for purposes of determining basic and diluted earnings per share calculations.
⁽⁴⁾
Total BlackRock stockholders’ equity, excluding appropriated retained earnings, divided by total common and preferred ~~shares~~stock outstanding at ~~March 31,~~June 30, 2013 and 2012, respectively.
PennyMac IPO. At March 31, 2013, BlackRock held an approximately one-third economic equity interest in Private National Mortgage Acceptance Company, LLC (“PNMAC”), which is accounted for as an equity method investment. On May 8, 2013, PennyMac Financial Services, Inc. (“PennyMac”) became the sole managing member of PNMAC in connection with an initial public offering of PennyMac (the “PennyMac IPO”). As a result of the PennyMac IPO, BlackRock recorded a non-cash, non-operating pre-tax gain of $39 million related to the carrying value of its equity method investment. BlackRock was not a seller in the PennyMac IPO.
Charitable Contribution. Subsequent to the PennyMac IPO, the Company contributed 6.1 million units of its PennyMac investment to a new donor advised fund (the “Charitable Contribution”). The fair value of the Charitable Contribution was $124 million and is included in general and administration expenses on the condensed consolidated statements of income. In connection with the Charitable Contribution, the Company also recorded a non-cash, non-operating pre-tax gain of $80 million related to the contributed investment and a tax benefit of approximately $57 million.
The Company will continue to account for its remaining interest (approximately 20% or 16 million units) in PennyMac as an equity method investment.
The general and administration expenses, non-operating gain and associated tax benefit related to the Charitable Contribution have been excluded from as adjusted results.
Three Months Ended ~~March 31,~~June 30, 2013 Compared with Three Months ended ~~March 31,~~June 30, 2012.
~~GAAP.~~GAAP. Operating income of ~~$909~~$849 million ~~and operating margin of 37.1%~~ increased ~~$94~~$20 million ~~and 90 bps, respectively,~~ from the ~~prior year quarter~~three months ended June 30, 2012, reflecting ~~revenue growth~~record base fees and strong performance fees, substantially offset by higher expenses, primarily due to the $124 million expense ~~discipline~~.~~The first quarter 2013 results included $33 million of compensation~~related to the Charitable Contribution and severance costs associated with the alignment of staffing with the Company’s strategic priorities and growth opportunities. First quarter 2013 results also included $18 million of launch costs for the $700 million Multi-Sector Income Trust closed-end fund launched in February 2013.higher revenue-related expenses. Non-operating income (expense), less net income (loss) attributable to NCI ~~decreased $13~~increased $138 million primarily due to ~~higher interest expense resulting from long-term debt issuances in May 2012~~the $39 million pre-tax gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and ~~lower~~higher net positive marks on investments during the current quarter ~~ended March 31, 2013~~ compared with the ~~quarter ended March 31, 2012.~~prior year quarter. Earnings per diluted common share rose ~~$0.48,~~$1.11, or ~~15%~~36%, compared with the quarter ended ~~March 31,~~June 30, 2012 due to higher net income and the benefit of share repurchases.
As Adjusted. Operating income of ~~$921~~$982 million and operating margin of ~~40.0%~~41.3% increased ~~$96~~$150 million and ~~140~~210 bps, respectively, from the ~~first~~second quarter 2012. Earnings per diluted common share rose $1.05, or 34%, from the prior year quarter. The ~~first~~financial impact related to the Charitable Contribution has been excluded from as adjusted results. Second quarter 2013 ~~as adjusted~~earnings per share reflects the $39 million non-cash, non-operating pre-tax gain related to the PennyMac IPO.
Six Months Ended June 30, 2013 Compared with Six Months ended June 30, 2012.
GAAP. Operating income of $1,758 million increased $114 million from the six months ended June 30, 2012, reflecting growth in base fees and strong performance fees, partially offset by higher expenses, primarily due to the $124 million expense related to the Charitable Contribution and higher revenue-related expenses. The results for the six months ended June 30, 2013 also included $42 million of organizational alignment costs and $18 million of closed-end fund launch costs. Non-operating income (expense), less net income (loss) attributable to NCI increased $125 million due to the $39 million pre-tax gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and higher net positive marks on investments during the six months ended June 30, 2013 compared with the prior year period. Earnings per diluted common share rose $1.59, or 26%, compared with the prior year period due to higher net income and the benefit of share repurchases.
As Adjusted. Operating income of $1,903 million and operating margin of 40.6% increased $246 million and 170 bps, respectively, from the six months ended June 30, 2012. The current period results included the previously mentioned organizational alignment costs of ~~$33~~$42 million, ~~and~~closed-end fund launch costs of $18 ~~million.~~million and the $39 million pre-tax gain related to the PennyMac IPO. Earnings per diluted common share rose ~~$0.49,~~$1.54, or ~~16%~~25%, from ~~first quarter~~the six months ended June 30, 2012. The financial impact related to the Charitable Contribution has been excluded from as adjusted results.
SeeNon-GAAP Financial Measures for further information on as adjusted items.
For further discussion of BlackRock’s revenue, expenses, non-operating results and income tax expense, seeDiscussion of Financial Results herein.
Non-GAAP Financial Measures
BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Computations for all periods are derived from the Company’s condensed consolidated statements of income as follows:
(a) Operating income, as adjusted, and operating margin, as adjusted:
Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items management deems non-recurring, or transactions that ultimately will not impact BlackRock’s book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and related commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement divided by revenue (net of distribution and servicing costs and amortization of deferred sales commissions) used for operating margin measurement, as indicated in the table below.

Three Months Ended
March 31,
(in millions) 2013 2012
Operating income, GAAP basis
$909      $815
Non-GAAP expense adjustments:

PNC LTIP funding obligation
8      5
Compensation expense related to appreciation (depreciation) on deferred compensation plans
4      5

Operating income, as adjusted
921      825
Closed-end fund launch costs
16      -
Closed-end fund launch commissions
2      -

Operating income used for operating margin measurement
$939      $825

Revenue, GAAP basis
      $2,449            $2,249
Non-GAAP adjustments:

Distribution and servicing costs
(91)      (95)
Amortization of deferred sales commissions
(12)      (16)

Revenue used for operating margin measurement
$2,346      $2,138

Operating margin, GAAP basis
37.1%      36.2%

Operating margin, as adjusted
40.0%      38.6%

Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors.
(a) ~~continued~~(continued)

Operating income, as adjusted and operating margin, as adjusted
   Three Months Ended
June 30,    Six Months Ended
June 30,
(in millions)      2013        2012        2013        2012
Operating income, GAAP basis
   $849         $829         $1,758         $1,644
Non-GAAP expense adjustments:

Charitable Contribution
   124         -         124         -
PNC LTIP funding obligation
   9         6         17         11
Compensation expense related to appreciation (depreciation) on deferred compensation plans
   -         (3)         4         2








Operating income, as adjusted
   982       832         1,903         1,657
Closed-end fund launch costs
   -         -         16         -
Closed-end fund launch commissions
   -         -         2         -








Operating income used for operating margin measurement
   $982         $832         $1,921         $1,657








Revenue, GAAP basis
         $2,482               $2,229               $4,931               $4,478
Non-GAAP adjustments:

Distribution and servicing costs
   (90)         (93)         (181)         (188)
Amortization of deferred sales commissions
   (12)         (14)         (24)         (30)








Revenue used for operating margin measurement
   $2,380         $2,122         $4,726         $4,260








Operating margin, GAAP basis
   34.2%         37.2%         35.7%         36.7%








Operating margin, as adjusted
   41.3%         39.2%         40.6%         38.9%








~~Operating income, as adjusted:~~
Operating income, as adjusted, reflects the non-GAAP expense adjustments discussed below. The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded or to be funded through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income (expense).
•
Operating income, as adjusted:Operating income, as adjusted, reflects the non-GAAP expense adjustments discussed below. The $124 million expense related to the Charitable Contribution has been excluded from operating income, as adjusted, due to its non-recurring nature and because the non-cash, non-operating pre-tax gain of $80 million related to the contributed PennyMac investment is reported in non-operating income (expense). The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately does not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income (expense).
Management believes operating income exclusive of these items is a useful measure in evaluating BlackRock’s operating performance and helps enhance the comparability of this information for the reporting periods presented.
~~Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end~~
•
Operating margin, as adjusted:Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end
(a) (continued)
fund launch costs and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company’s results until future periods.
Operating margin, as adjusted, allows the Company to compare performance from period-to-period by adjusting for items that may not recur, recur infrequently or may have an economic offset in non-operating income (expense). Examples of such adjustments include commissions paid to certain employees as compensation and fluctuations in compensation expense based on mark-to-market movements in investments held to fund certain compensation plans. The Company also uses operating margin, as adjusted, to monitor corporate performance and efficiency and as a benchmark to compare its performance with other companies. Management uses both GAAP and non-GAAP financial measures in evaluating the financial performance of BlackRock. The non-GAAP measure by itself may pose limitations because it does not include all of the Company’s revenues and expenses.
Revenue used for operating margin, as adjusted, excludes distribution and servicing costs paid to related parties and other third parties. Management believes the exclusion of such costs is useful because it creates consistency in the treatment for certain contracts for similar services, which due to the terms of the contracts, are accounted for under GAAP on a net basis within investment advisory, administration fees and securities lending revenue. Amortization of deferred sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, substantially offset distribution fee revenue earned by the Company. For each of these items, BlackRock excludes from revenue used for operating margin, as adjusted, the costs related to each of these items as a proxy for such offsetting revenues.
(b) Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted:
Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, is presented below. The compensation expense offset is recorded in operating income. This compensation expense has been included in non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, to offset returns on investments set aside for these plans, which are reported in non-operating income (expense), GAAP basis.

   Three Months Ended
March 31,
(in millions)        2013            2012
Non-operating income (expense), GAAP basis
   $41         $23
Less: Net income (loss) attributable to NCI
           34                 3




Non-operating income (expense), net of NCI
   7         20
Compensation expense related to (appreciation) depreciation on deferred compensation plans
   (4)         (5)




Non-operating income (expense), net of NCI, as adjusted
   $3         $15




Management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides comparability of this information among reporting periods and is an effective measure for reviewing BlackRock’s non-operating contribution to its results. As compensation expense associated with (appreciation) depreciation on investments related to certain deferred compensation plans, which is included in operating income, substantially offsets the gain (loss) on the investments set aside for these plans, management believes non-operating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock’s non-operating results that impact book value. The non-cash, non-operating pre-tax gain of $80 million related to the contributed PennyMac investment has been excluded from non-operating income (expense), less net income (loss) attributable to NCI, as adjusted due to its non-recurring nature and because the more than offsetting associated Charitable Contribution expense of $124 million is reported in operating income.
(b) (continued)
Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted
   Three Months Ended
June 30,    Six Months Ended
June 30,
(in millions)        2013            2012            2013            2012
Non-operating income (expense), GAAP basis
   $69         ($40)         $110         ($17)
Less: Net income (loss) attributable to NCI
   (23)         6         11         9








Non-operating income (expense), net of NCI
   92         (46)         99         (26)
Gain related to the Charitable Contribution
   (80)         -          (80)         -
Compensation expense related to (appreciation) depreciation on deferred compensation plans
   -          3         (4)         (2)








Non-operating income (expense), less net income (loss) attributable to NCI, as adjusted
   $12         ($43)         $15           ($28)








(c) Net income attributable to BlackRock, as adjusted:
Management believes net income attributable to BlackRock, as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock’s profitability and financial performance. Net income attributable to BlackRock, as adjusted, equals net income attributable to BlackRock, GAAP basis, adjusted for significant non-recurring items, charges that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

   Three Months Ended
March 31,
(in millions, except per share data)    2013    2012
Net income attributable to BlackRock, GAAP basis
   $632         $572
Non-GAAP adjustment, net of tax:^(d)

PNC LTIP funding obligation
   5         3




Net income attributable to BlackRock, as adjusted
   $637         $575




Allocation of net income, as adjusted, to common shares^(e)
   $637         $574
Diluted weighted-average common shares outstanding^(f)
   174,561,132         181,917,864
Diluted earnings per common share, GAAP basis^(f)
   $3.62         $3.14
Diluted earnings per common share, as adjusted^(f)
   $3.65         $3.16
~~(c) continued~~
See note (a) Operating income, as adjusted, and operating margin, as adjusted, for information on the Charitable Contribution and the PNC LTIP funding obligation.
The three and six months ended June 30, 2013 included a tax benefit of approximately $57 million recognized in connection with the Charitable Contribution. The tax benefit has been excluded from net income attributable to BlackRock, Inc., as adjusted due to the non-recurring nature of the Charitable Contribution.
(c) (continued)
Net income attributable to BlackRock, Inc., as adjusted
   Three Months Ended
June 30,    Six Months Ended
June 30,
(in millions, except per share data)    2013    2012    2013    2012
Net income attributable to BlackRock, Inc., GAAP basis
   $729         $554         $1,361         $1,126
Non-GAAP adjustments, net of tax:^(d)

Amount related to the Charitable Contribution
   (13)         -         (13)         -
PNC LTIP funding obligation
   6         4         11         7








Net income attributable to BlackRock, Inc., as adjusted
   $722         $558         $1,359         $1,133








Allocation of net income, as adjusted, to common shares^(e)
   $722         $557         $1,359         $1,131
Diluted weighted-average common shares outstanding^(f)
   173,873,583         179,590,702         174,268,870         180,753,515
Diluted earnings per common share, GAAP basis^(f)
   $4.19         $3.08         $7.81         $6.22
Diluted earnings per common share, as adjusted^(f)
   $4.15         $3.10         $7.80         $6.26
(d) For the quarters ended ~~March 31,~~June 30, 2013 and 2012, the PNC LTIP funding obligation non-GAAP adjustment was tax effected at 30.2% and 30.4%, respectively, reflecting a blended rate applicable to the adjustment. For the six months ended June 30, 2013 and 2012, the PNC LTIP funding obligation non-GAAP adjustments were tax effected at 31.0%. The three and ~~31.5%, respectively.~~six months ended June 30, 2013 also included a tax benefit of approximately $57 million related to the Charitable Contribution.
(e) For the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2012, ~~the amount excluded~~amounts exclude net income attributable to participating ~~securities.~~securities (see below).
(f) Non-voting participating preferred ~~shares are~~stock is considered to be a common stock ~~equivalents~~equivalent for purposes of determining basic and diluted earnings per share calculations.
Prior to first quarter 2013, certain unvested restricted stock units were not included in diluted weighted-average common shares outstanding as they were deemed participating securities in accordance with required provisions of Accounting Standards Codification (“ASC”) 260-10,Earnings per Share. Average outstanding participating securities were 0.2 million for the quarter and six months ended June 30, 2012. For further information, see Note 17,Earnings per Share, to the condensed consolidated financial statements.
Assets Under Management
AUM for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.
The following summary table presents AUM by client type.

Variance vs.
(in millions) March 31,
2013 December 31,
2012 March 31,
2012 December 31,
2012 March 31,
2012
Equity:

Active
$291,759    $287,215    $297,184                       2%    (2%)
iShares
588,694    534,648    479,585    10%            23%
Fixed income:

Active
648,865    656,331    624,723    (1%)    4%
iShares
189,501    192,852    168,365    (2%)    13%
Multi-asset class
283,566    267,748    246,507    6%              15%
Alternatives:

Core
69,943    68,367    65,788    2%    6%
Currency and commodities⁽¹⁾
37,618    41,428    44,656    (9%)    (16%)

Sub-total
2,109,946    2,048,589    1,926,808    3%    10%
Non-ETF Index

Equity
1,112,142    1,023,638    966,950    9%    15%
Fixed Income
407,167    410,139    450,749    (1%)    (10%)

Sub-total Non-ETF Index
1,519,309    1,433,777    1,417,699    6%    7%

Long-term
3,629,255    3,482,366    3,344,507    4%    9%
Cash management
261,329    263,743    241,929    (1%)    8%

Sub-total
3,890,584    3,746,109    3,586,436    4%    8%
Advisory⁽²⁾
45,825    45,479    97,651    1%    (53%)

Total
$3,936,409    $3,791,588    $3,684,087    4%    7%

~~Mix of Assets Under Management –~~AUM and Net Subscriptions (Redemptions) by ~~Asset Class~~Client Type

March 31,
2013 December 31,
2012 March 31,
2012
Equity:

Active
                7%                    8%                    8%
iShares
15%    14%    13%
Fixed income:

Active
17%    17%    17%
iShares
5%    5%    5%
Multi-asset class
7%    7%    7%
Alternatives:

Core
2%    2%    2%
Currency and commodities⁽¹⁾
1%    1%    1%

Sub-total
54%    54%    53%
Non-ETF Index

Equity
28%    27%    25%
Fixed Income
10%    11%    12%

Sub-total Non-ETF Index
38%    38%    37%

Long-term
92%    92%    90%
Cash management
7%    7%    7%

Sub-total
99%    99%    97%
Advisory⁽²⁾
1%    1%    3%

Total
100%    100%    100%

⁽¹⁾
~~Amounts include commodity~~~~iShares~~.
⁽²⁾
~~Advisory AUM represents long-term portfolio liquidation assignments.~~
AUM Net Subscriptions (Redemptions)⁽¹⁾
(in millions) June 30,
2013 March 31,
2013 June 30,
2012 Three Months
Ended
June 30,
2013 Six Months
Ended
June 30,
2013 Twelve Months
Ended
June 30,
2013⁽²⁾
Retail
$ 414,379    $ 421,141    $ 374,008    $ 5,076    $ 13,871    $ 22,616
iShares
774,397    802,776    644,908    (963 ) 24,631    85,510
Institutional:

Active
861,231    878,741    849,994    1,317    (8,983 ) (24,372 )
Index
1,514,448    1,526,597    1,386,508    6,477    21,833    (28,280 )

Total institutional
2,375,679    2,405,338    2,236,502    7,794    12,850    (52,652 )

Total long-term
3,564,455    3,629,255    3,255,418    11,907    51,352    55,474

Cash management
252,562    261,329    239,471    (8,829 ) (8,663 ) 12,821
Advisory⁽³⁾
39,990    45,825    65,045    (4,891 ) (4,002 ) (24,030 )

Total
$ 3,857,007    $ 3,936,409    $ 3,559,934    ($1,813 ) $ 38,687    $ 44,265

The following summary table presents ~~the component changes in BlackRock’s~~ AUM ~~for the quarter ended March 31, 2013.~~by product type.
AUM and Net Subscriptions (Redemptions) by Product Type

(in millions) December 31,
2012 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation) Foreign
exchange⁽²⁾ March 31,
2013
Equity:

Active
$ 287,215    ($6,873 ) $ 16,732    ($5,315 ) $ 291,759
iShares
534,648    26,280    29,874    (2,108 ) 588,694
Fixed income:

Active
656,331    (2,380 ) 1,782    (6,868 ) 648,865
iShares
192,852    (1,016 ) (962 ) (1,373 ) 189,501
Multi-asset class
267,748    9,029    11,125    (4,336 ) 283,566
Alternatives:

Core
68,367            1,511    797    (732 ) 69,943
Currency and commodities⁽³⁾
41,428    (2,187 ) (903 ) (720 ) 37,618

Subtotal
2,048,589    24,364    58,445    (21,452 ) 2,109,946
Non-ETF Index

Equity
1,023,638    14,267    91,162    (16,925 ) 1,112,142
Fixed Income
410,139    816    10,457    (14,245 ) 407,167

Sub-total Non-ETF Index
1,433,777    15,083          101,619    (31,170 ) 1,519,309

Long-term
3,482,366    39,447    160,064    (52,622 ) 3,629,255
Cash management
263,743    166    101    (2,681 ) 261,329

Sub-total
3,746,109    39,613    160,165    (55,303 ) 3,890,584
Advisory⁽⁴⁾
45,479    889    (61 ) (482 ) 45,825

Total
$ 3,791,588    $ 40,502    $ 160,104    ($55,785 ) $ 3,936,409

AUM Net Subscriptions (Redemptions)⁽¹⁾
(in millions) June 30,
2013 March 31,
2013 June 30,
2012 Three Months
Ended
June 30,
2013 Six Months
Ended
June 30,
2013 Twelve Months
Ended
June 30,
2013⁽²⁾
Equity
$ 1,973,115    $ 1,992,595    $ 1,642,683    ($348 ) $ 33,323    $ 86,463
Fixed income
1,205,359    1,245,533    1,266,076    5,101    2,521    (50,551 )
Multi-asset
289,305    283,566    243,087    11,051    20,081    26,766
Alternatives
96,676    107,561    103,572    (3,897 ) (4,573 ) (7,204 )

Total long-term
3,564,455    3,629,255    3,255,418    11,907    51,352    55,474

Cash management
252,562    261,329    239,471    (8,829 ) (8,663 ) 12,821
Advisory⁽³⁾
39,990    45,825    65,045    (4,891 ) (4,002 ) (24,030 )

Total
$ 3,857,007    $ 3,936,409    $ 3,559,934    ($1,813 ) $ 38,687    $ 44,265

⁽¹⁾
Amounts include distributions representing return of capital and return on investment to investors.
⁽⁽²⁾
Amounts include the effect of a single non-ETF index fixed income outflow of $74.2 billion in the third quarter 2012.
²⁽³⁾
Advisory AUM represents long-term portfolio liquidation assignments.
Component Changes in AUM for the Second Quarter 2013
The following table presents component changes in AUM by client type and product for the quarter ended June 30, 2013.
(in millions) March 31,
2013 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation) Foreign
exchange⁽²⁾ June 30,
2013
Retail:

Equity
$ 169,402    $ (1,753 ) $ (6,068 ) $ (140 ) $ 161,441
Fixed income
143,711    2,636    (4,778 ) (28 ) 141,541
Multi-asset
97,373    2,489    (501 ) (256 ) 99,105
Alternatives
10,655    1,704    (66 ) (1 ) 12,292

Retail sub-total
421,141    5,076    (11,413 ) (425 ) 414,379
iShares:

Equity
588,694    2,655    (12,922 ) (1,159 ) 577,268
Fixed income
189,501    (1,449 ) (6,921 ) (188 ) 180,943
Multi-asset
1,035    99    (21 ) (6 ) 1,107
Alternatives
23,546    (2,268 ) (6,188 ) (11 ) 15,079

iShares sub-total
802,776    (963 ) (26,052 ) (1,364 ) 774,397
Institutional:

Active:

Equity
130,138    (2,938 ) 361    (1,136 ) 126,425
Fixed income
505,391    (1,269 ) (11,982 ) (1,650 ) 490,490
Multi-asset
175,524    8,778    (4,064 ) 72    180,310
Alternatives
67,688    (3,254 ) 26    (454 ) 64,006

Active sub-total
878,741    1,317    (15,659 ) (3,168 ) 861,231
Index:

Equity
1,104,361    1,688    8,013    (6,081 ) 1,107,981
Fixed income
406,930    5,183    (16,497 ) (3,231 ) 392,385
Multi-asset
9,634    (315 ) (339 ) (197 ) 8,783
Alternatives
5,672    (79 ) (292 ) (2 ) 5,299

Index sub-total
1,526,597    6,477    (9,115 ) (9,511 ) 1,514,448

Long-term
3,629,255    11,907    (62,239 ) (14,468 ) 3,564,455

Cash management
261,329    (8,829 ) 30    32    252,562
Advisory⁽³⁾
45,825    (4,891 ) (114 ) (830 ) 39,990

Total
$ 3,936,409    $ (1,813 ) $ (62,323 ) $ (15,266 ) $ 3,857,007

⁾⁽¹⁾
Amounts include distributions representing return of capital and return on investment to investors.
⁽²⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽³⁾
~~Amounts include commodity~~~~iShares~~.
⁽⁴⁾⁽³⁾
Advisory AUM represents long-term portfolio liquidation assignments.
The following table presents component changes in AUM by product for the quarter ended June 30, 2013.
(in millions) March 31,
2013 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation) Foreign
exchange⁽²⁾ June 30,
2013
Equity:

Active
$ 291,759    $ (4,333 ) $ (5,863 ) $ (1,231 ) $ 280,332
iShares
588,694    2,655    (12,922 ) (1,159 ) 577,268
Fixed income:

Active
648,865    1,367    (16,754 ) (1,670 ) 631,808
iShares
189,501    (1,449 ) (6,921 ) (188 ) 180,943
Multi-asset
283,566    11,051    (4,925 ) (387 ) 289,305
Alternatives:

Core
69,943    406    56    (178 ) 70,227
Currency and commodities⁽⁴⁾
37,618    (4,303 ) (6,576 ) (290 ) 26,449

Sub-total
2,109,946    5,394    (53,905 ) (5,103 ) 2,056,332
Non-ETF Index:

Equity
1,112,142    1,330    8,169    (6,126 ) 1,115,515
Fixed income
407,167    5,183    (16,503 ) (3,239 ) 392,608

Sub-total Non-ETF Index
1,519,309    6,513    (8,334 ) (9,365 ) 1,508,123

Long-term
3,629,255    11,907    (62,239 ) (14,468 ) 3,564,455
Cash management
261,329    (8,829 ) 30    32    252,562
Advisory⁽³⁾
45,825    (4,891 ) (114 ) (830 ) 39,990

Total
$ 3,936,409    $ (1,813 ) $ (62,323 ) $ (15,266 ) $ 3,857,007

⁽¹⁾
Amounts include distributions representing return of capital and return on investment to investors.
⁽²⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽³⁾
Advisory AUM represents long-term portfolio liquidation assignments.
⁽⁴⁾
Amounts include commodityiShares.
AUM ~~increased $144.8~~decreased $79.4 billion to $3.857 trillion at June 30, 2013 from $3.936 trillion at March 31, 2013, largely driven by market declines and foreign exchange losses, partially offset by long-term positive net new business.
Net market depreciation of $62.3 billion primarily included depreciation of $40.2 billion across most fixed income strategies and net depreciation of $10.6 billion from equity products primarily due to lower global equity markets.
AUM decreased $15.3 billion from foreign exchange movements resulting from the strengthening of the U.S. dollar, largely against the Japanese yen and Australian dollar.
Net Subscriptions (Redemptions). Net redemptions of $1.8 billion reflected outflows from cash management and advisory clients, substantially offset by positive long-term net new business of $11.9 billion. Long-term flows included inflows of $5.1 billion and $7.8 billion from retail and institutional clients, respectively, partially offset by $1.0 billion of outflows fromiShares.
Long-term Net Subscriptions (Redemptions). Net subscriptions in long-term products of $11.9 billion reflected the following:
Net Subscriptions
^·
Multi-asset net inflows of $11.1 billion reflecting strong flows of $8.8 billion into institutional active multi-asset products driven by continued demand for theLifePath^® target date suite, which had net inflows of $4.0 billion;
^·
Non-ETF index fixed income net inflows of $5.2 billion primarily driven by demand for local currency fixed income products in EMEA and for global bond mandates in Asia-Pacific; and
^·
EquityiShares net new business of $2.7 billion, concentrated in U.S. core and single-country equity offerings, partially offset by outflows from emerging markets strategies.
Net Redemptions
^·
Active equity net outflows of $4.3 billion concentrated in sector specific, U.S. and global strategies, partially offset by inflows into regional and country specific strategies; and
^·
Alternatives currency and commodities net outflows of $4.3 billion primarily related to outflows fromiShares commodity funds and active currency redemptions.
Cash Management Net Redemptions.     Cash management net outflows of $8.8 billion primarily were comprised of net outflows from Americas institutional and retail clients in prime strategies and EMEA institutional clients in offshore funds.
Advisory Net Redemptions. Advisory net outflows of $4.9 billion were due to planned portfolio liquidations.
Component Changes in AUM for the Six Months Ended 2013
The following table presents the component changes in AUM by client type and product for the six months ended June 30, 2013.
(in millions) December 31,
2012 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation) Foreign
exchange⁽²⁾ June 30,
2013
Retail:

Equity
$ 164,748    $ (2,364 ) $ 960    $ (1,903 ) $ 161,441
Fixed income
138,425    8,073    (4,671 ) (286 ) 141,541
Multi-asset
90,626    5,379    3,511    (411 ) 99,105
Alternatives
9,685    2,783    (16 ) (160 ) 12,292

Retail sub-total
403,484    13,871    (216 ) (2,760 ) 414,379
iShares:

Equity
534,648    28,934    16,952    (3,266 ) 577,268
Fixed income
192,852    (2,465 ) (7,883 ) (1,561 ) 180,943
Multi-asset
869    228    18    (8 ) 1,107
Alternatives
24,337    (2,066 ) (7,149 ) (43 ) 15,079

iShares sub-total
752,706    24,631    1,938    (4,878 ) 774,397
Institutional:

Active:

Equity
129,024    (8,582 ) 10,670    (4,687 ) 126,425
Fixed income
518,102    (9,043 ) (10,308 ) (8,261 ) 490,490
Multi-asset
166,708    14,607    2,563    (3,568 ) 180,310
Alternatives
70,861    (5,965 ) 668    (1,558 ) 64,006

Active sub-total
884,695    (8,983 ) 3,593    (18,074 ) 861,231
Index:

Equity
1,017,081    15,335    98,571    (23,006 ) 1,107,981
Fixed income
409,943    5,956    (6,038 ) (17,476 ) 392,385
Multi-asset
9,545    (133 ) 108    (737 ) 8,783
Alternatives
4,912    675    (128 ) (160 ) 5,299

Index sub-total
1,441,481    21,833    92,513    (41,379 ) 1,514,448

Long-term
3,482,366    51,352    97,828    (67,091 ) 3,564,455

Cash management
263,743    (8,663 ) 131    (2,649 ) 252,562
Advisory⁽³⁾
45,479    (4,002 ) (175 ) (1,312 ) 39,990

Total
$ 3,791,588    $ 38,687    $ 97,784    $ (71,052 ) $ 3,857,007

(¹⁾
Amounts include distributions representing return of capital and return on investment to investors.
⁽²⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽³⁾
Advisory AUM represents long-term portfolio liquidation assignments.
The following table presents component changes in AUM by product for the six months ended June 30, 2013.
(in millions) December 31,
2012 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation) Foreign
exchange⁽²⁾ June 30,
2013
Equity:

Active
$ 287,215 $ (11,208 ) $ 10,870    $ (6,545 ) $ 280,332
iShares
534,648 28,934    16,952    (3,266 ) 577,268
Fixed income:

Active
656,331 (1,013 ) (14,971 ) (8,539 ) 631,808
iShares
192,852 (2,465 ) (7,883 ) (1,561 ) 180,943
Multi-asset
267,748 20,081    6,200    (4,724 ) 289,305
Alternatives:

Core
68,367 1,917    853    (910 ) 70,227
Currency and commodities⁽⁴⁾
41,428 (6,490 ) (7,478 ) (1,011 ) 26,449

Sub-total
2,048,589 29,756    4,543    (26,556 ) 2,056,332
Non-ETF Index:

Equity
1,023,638 15,597    99,331    (23,051 ) 1,115,515
Fixed income
410,139 5,999    (6,046 ) (17,484 ) 392,608

Sub-total Non-ETF Index
1,433,777 21,596    93,285    (40,535 ) 1,508,123

Long-term
3,482,366 51,352    97,828    (67,091 ) 3,564,455
Cash management
263,743 (8,663 ) 131    (2,649 ) 252,562
Advisory⁽³⁾
45,479 (4,002 ) (175 ) (1,312 ) 39,990

Total
$ 3,791,588 $ 38,687    $ 97,784    $ (71,052 ) $ 3,857,007

⁽¹⁾
Amounts include distributions representing return of capital and return on investment to investors.
⁽²⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽³⁾
Advisory AUM represents long-term portfolio liquidation assignments.
⁽⁴⁾
Amounts include commodityiShares.
AUM increased approximately $65.4 billion to $3.857 trillion at June 30, 2013 from $3.792 trillion at December 31, 2012, largely driven by market ~~gains~~appreciation of $97.8 billion and ~~positive~~ net ~~new business,~~inflows of $38.7 billion. The increase in AUM was partially offset by ~~a decrease in AUM from~~ foreign exchange ~~movements.~~losses.
Net market appreciation of ~~$160.1~~$97.8 billion ~~primarily~~ included ~~appreciation of $137.8~~$127.2 billion from equity products, primarily due to higher U.S. and global equity ~~markets.~~markets, partially offset by depreciation of $28.9 billion from fixed income products across all fixed income strategies.
The ~~$55.8~~$71.1 billion decrease in AUM from foreign exchange movements ~~primarily resulted from~~was due to the strengthening of the U.S. dollar, ~~largely~~primarily against the pound sterling and Japanese yen.
Net Subscriptions (Redemptions)..    Net subscriptions ~~of $40.5 billion~~ reflected positive long-term net new business ~~across all client types, including $25.6~~of $51.4 billion, ~~$10.1 billion~~partially offset by outflows from cash management and ~~$4.8~~advisory clients. Net long-term subscriptions reflected net subscriptions of $24.6 billion fromiShares, clients, $13.9 billion from retail clients and ~~HNW and~~$12.9 billion from institutional ~~clients, respectively.~~clients.
Long-term Net Subscriptions (Redemptions).Net subscriptions in long-term products ~~of $39.4~~totaling $51.4 billion, reflected the following:
Net Subscriptions

^·
EquityiSharesnet ~~new business~~inflows of ~~$26.3~~$28.9 billion, concentrated in U.S. ~~equity offerings;~~
^·
~~Non-ETF Index equity net inflows of $14.3 billion primarily into~~, global and ~~U.S. equity mandates as clients continue their use of passive vehicles for broad macro exposure;~~sector specific strategies;
^·
Multi-asset net inflows of ~~$9.0~~$20.1 billion, ~~largely~~reflecting strong flows of $14.6 billion into ~~global balanced~~institutional active multi-asset products, ~~and~~driven by continued demand for theLifePath target date suite, which had net inflows of $6.9 billion;
^® ~~target-date funds;~~^·
Non-ETF index equity net inflows of $15.6 billion primarily in global strategies, partially offset by outflows from regional and country specific strategies; and
^·
Non-ETF index fixed income net inflows of $6.0 billion, concentrated in local currency and U.S. targeted duration strategies.
Net Redemptions
^·
Active equity net outflows of $11.2 billion, concentrated in U.S. equity and sector specific strategies; and
^·
~~Core alternatives net inflows of $1.5 billion, concentrated in single strategy hedge funds.~~
~~Net Redemptions~~
^·
~~Active equity net outflows of $6.9 billion, largely from fundamental U.S. equity and sector mandates;~~
^·
Active fixed income net outflows of $2.4 billion reflecting institutional client outflows from U.S. targeted duration, core and sector-specialty mandates, partially offset by inflows from retail and HNW clients largely in U.S. core and municipal fixed-income offerings; and
^·
Alternatives currency and commodities net outflows of ~~$2.2~~$6.5 billion, primarily related to active currency ~~outflows.~~redemptions and outflows fromiShares commodity funds.
Cash Management Net ~~Subscriptions.~~Redemptions.    Cash management net ~~inflows~~outflows of ~~$0.2~~$8.7 billion were ~~comprised of~~driven by net outflows from Americas institutional clients primarily in prime strategies, partially offset by inflows from Americas institutional clients into government ~~funds partially offset by~~funds.
Advisory Net Redemptions. Advisory net outflows ~~from Americas institutional clients in prime strategies.~~of $4.0 billion were driven by planned portfolio liquidation disbursements.
Component Changes in AUM for the Twelve Months Ended June 30, 2013
The following table presents ~~the~~ component changes in ~~BlackRock’s~~ AUM by client type and product for the twelve months ended ~~March 31,~~June 30, 2013.

(in millions) March 31,
2012 Net
subscriptions
(redemptions)⁽¹⁾ Acquisition⁽²⁾ Market
appreciation
(depreciation) Foreign
exchange⁽³⁾ March 31,
2013
Equity:

Active
$ 297,184    ($20,508 ) $ — $ 20,067    ($4,984 ) $ 291,759
iShares
479,585    71,417    — 39,843    (2,151 ) 588,694
Fixed income:

Active
624,723    (2,575 ) — 34,212    (7,495 ) 648,865
iShares
168,365    18,329    — 4,097    (1,290 ) 189,501
Multi-asset class
246,507    20,079    — 21,422    (4,442 ) 283,566
Alternatives:

Core
65,788    (3,084 ) 6,161    1,730    (652 ) 69,943
Currency and commodities⁽⁴⁾
44,656    (4,404 ) — (1,769 ) (865 ) 37,618

Subtotal
1,926,808    79,254    6,161    119,602    (21,879 ) 2,109,946
Non-ETF Index

Equity
966,950    33,872    — 128,884    (17,564 ) 1,112,142
Fixed income
450,749    (65,819 ) — 30,561    (8,324 ) 407,167

Sub-total Non-ETF Index
1,417,699    (31,947 ) — 159,445    (25,888 ) 1,519,309

Long-term
3,344,507    47,307    6,161    279,047    (47,767 ) 3,629,255
Cash management
241,929    20,149    — 1,296    (2,045 ) 261,329

Sub-total
3,586,436    67,456    6,161    280,343    (49,812 ) 3,890,584
Advisory⁽⁵⁾
97,651    (50,794 ) — (557 ) (475 ) 45,825

Total
$ 3,684,087    $     16,662    $         6,161    $   279,786    ($50,287 ) $ 3,936,409

(in millions)    June 30,
2012    Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation)⁽²⁾ Foreign
exchange⁽³⁾ June 30,
2013
Retail:

Equity
   $ 154,835       $ (4,034 ) $ 11,529    $ (889 ) $ 161,441
Fixed income
   123,397       18,566    (318 ) (104 ) 141,541
Multi-asset
   86,372       5,194    7,867    (328 ) 99,105
Alternatives
   9,404       2,890    54    (56 ) 12,292




Retail sub-total
   374,008       22,616    19,132    (1,377 ) 414,379
iShares:

Equity
   443,311       79,522    54,978    (543 ) 577,268
Fixed income
   180,355       5,205    (4,478 ) (139 ) 180,943
Multi-asset
   712       353    47    (5 ) 1,107
Alternatives
   20,530       430    (5,883 ) 2    15,079




iShares sub-total
   644,908       85,510    44,664    (685 ) 774,397
Institutional:

Active:

Equity
   126,589       (18,057 ) 21,518    (3,625 ) 126,425
Fixed income
   507,449       (16,332 ) 6,672    (7,299 ) 490,490
Multi-asset
   147,409       20,952    12,591    (642 ) 180,310
Alternatives
   68,547       (10,935 ) 8,207    (1,813 ) 64,006




Active sub-total
   849,994       (24,372 ) 48,988    (13,379 ) 861,231
Index:

Equity
   917,948       29,032    180,976    (19,975 ) 1,107,981
Fixed income
   454,875       (57,990 ) 5,285    (9,785 ) 392,385
Multi-asset
   8,594       267    837    (915 ) 8,783
Alternatives
   5,091       411    (112 ) (91 ) 5,299




Index sub-total
   1,386,508       (28,280 ) 186,986    (30,766 ) 1,514,448




Long-term
   3,255,418       55,474    299,770    (46,207 ) 3,564,455




Cash management
   239,471       12,821    737    (467 ) 252,562
Advisory⁽⁴⁾
   65,045       (24,030 ) (655 ) (370 ) 39,990




Total
   $ 3,559,934       $ 44,265    $ 299,852    $ (47,044 ) $ 3,857,007




⁽¹⁾
Amounts include distributions representing return of capital and return on investment to investors. Amounts also include the effect of a single ~~non-ETP~~non-ETF index fixed income outflow of $74.2 billion in the third quarter of 2012.
⁽²⁾
Amounts ~~represent~~include $6.1 billion of AUM acquired from Swiss Re Private Equity Partners (the “SRPEP Transaction”) in September 2012.
⁽³⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽⁴⁾
Advisory AUM represents long-term portfolio liquidation assignments.
The following table presents the component changes in AUM by product for the twelve months ended June 30, 2013.
(in millions) June 30,
2012 Net
subscriptions
(redemptions)⁽¹⁾ Market
appreciation
(depreciation)⁽²⁾ Foreign
exchange⁽³⁾ June 30,
2013
Equity:

Active
$ 274,670    $ (21,726 ) $ 31,878    $ (4,490 ) $ 280,332
iShares
443,311    79,522    54,978    (543 ) 577,268
Fixed income:

Active
630,639    2,205    6,359    (7,395 ) 631,808
iShares
180,355    5,205    (4,478 ) (139 ) 180,943
Multi-asset
243,087    26,766    21,342    (1,890 ) 289,305
Alternatives:

Core
63,575    (1,053 ) 8,356    (651 ) 70,227
Currency and commodities⁽⁵⁾
39,997    (6,151 ) (6,090 ) (1,307 ) 26,449

Sub-total
1,875,634    84,768    112,345    (16,415 ) 2,056,332
Non-ETF Index:

Equity
924,702    28,667    182,145    (19,999 ) 1,115,515
Fixed income
455,082    (57,961 ) 5,280    (9,793 ) 392,608

Sub-total Non-ETF Index
1,379,784    (29,294 ) 187,425    (29,792 ) 1,508,123

Long-term
3,255,418    55,474    299,770    (46,207 ) 3,564,455
Cash management
239,471    12,821    737    (467 ) 252,562
Advisory⁽⁴⁾
65,045    (24,030 ) (655 ) (370 ) 39,990

Total
$ 3,559,934    $ 44,265    $ 299,852    $ (47,044 ) $ 3,857,007

⁽¹⁾
Amounts include ~~commodity~~~~iShares~~.distributions representing return of capital and return on investment to investors. Amounts also include the effect of a single non-ETF index fixed income outflow of $74.2 billion in the third quarter 2012.
⁽⁵⁾⁽²⁾
Amounts include $6.1 billion of AUM acquired from the SRPEP Transaction in September 2012.
⁽³⁾
Foreign exchange reflects the impact of converting non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
⁽⁴⁾
Advisory AUM represents long-term portfolio liquidation assignments.
⁽⁵⁾
Amounts include commodityiShares.
AUM increased approximately ~~$252.3~~$297.1 billion to ~~$3.936~~$3.857 trillion at ~~March 31,~~June 30, 2013 from ~~$3.684~~$3.560 trillion at ~~March 31,~~June 30, 2012, largely driven by market appreciation, ~~long-term~~ net inflows of ~~$121.5~~$118.5 billion (excluding the effect of a single ~~non-ETP~~non-ETF index fixed income outflow of $74.2 billion in the third quarter of 2012) and acquired AUM related to the SRPEP Transaction. The increase in AUM was partially offset by ~~a decrease in AUM from~~ foreign exchange ~~movements.~~losses.
Net market appreciation of ~~$279.8~~$299.9 billion included ~~$188.8~~$269.0 billion from equity products, primarily due to higher U.S. and global equity markets, and ~~$68.9~~$21.3 billion from ~~fixed-income~~multi-asset products, concentrated in ~~local currency and U.S. products.~~global allocation strategies.
The ~~$50.3~~$47.0 billion decrease in AUM from foreign exchange movements was due to the strengthening of the U.S. dollar, primarily against the pound sterling and Japanese yen.
Net Subscriptions (Redemptions). Net subscriptions of ~~$16.7~~$44.3 billion included the effect of a single low-fee, ~~non-ETP~~non-ETF index ~~fixed-income~~fixed income redemption of $74.2 billion in the third quarter 2012. The net
new business figures below exclude this redemption. ~~Net~~Long-term net subscriptions of ~~$90.9~~$129.7 billion reflected net subscriptions of ~~$92.6~~$85.5 billion fromiShares clients, ~~and $22.8~~$22.6 billion from retail clients and ~~HNW clients, partially offset by net redemptions of $24.5~~$21.6 billion from institutional clients.
Long-term Net Subscriptions (Redemptions).Net subscriptions in long-term products totaling ~~$121.5~~$129.7 billion, excluding the single low-fee ~~non-ETP~~non-ETF index ~~fixed-income~~fixed income outflow discussed above, reflected the following:
Net Subscriptions

^·
EquityiSharesnet inflows of ~~$71.4~~$79.5 billion across all strategies, concentrated in U.S. equity ~~offerings~~ and regional and country specific strategies;
^·
Non-ETF index equity ~~products~~ net inflows of ~~$33.9~~$28.7 billion primarily in global ~~and regional and country specific~~ strategies, partially offset by outflows from U.S. equity ~~products;~~
^·
~~Multi-asset class~~ products ~~net inflows of $20.1 billion, reflecting strong demand for target-date funds, including~~~~LifePath~~ ~~portfolios;~~and regional and country specific strategies;
^·
~~Fixed income~~ ~~iShares~~Multi-asset net inflows of ~~$18.3~~$26.8 billion ~~concentrated in local currency, global and U.S. sector-specific strategies;~~reflecting strong demand for target-date funds, includingLifePath portfolios; and
^·
Non-ETF index fixed income ~~products~~ net inflows of ~~$8.4~~$16.2 billion (excluding the single low-fee non-ETF index fixed income outflow discussed above), concentrated in U.S. core strategies.
Net Redemptions

^·
Active equity net outflows of ~~$20.5~~$21.7 billion, concentrated in U.S. ~~equity and sector products;~~
^·
~~Alternatives net outflows of $7.5 billion primarily related to outflows in currency products, partially offset by $2.5 billion of net inflows into commodity~~~~iShares~~~~; and~~
^·
~~Active fixed income net outflows of $2.6 billion concentrated in U.S. targeted duration and U.S. core strategies, partially offset by net inflows into municipal~~, global and sector specific strategies.
Cash Management Net Subscriptions. Cash management net inflows of ~~$20.1~~$12.8 billion were comprised of net inflows from Americas institutional ~~and retail~~ clients primarily into government and Americas retail clients primarily into prime ~~strategies, respectively, and net inflows from international institutional clients concentrated in offshore funds.~~strategies.
Advisory Net Redemptions. Advisory net outflows of ~~$50.8~~$24.0 billion were driven by planned portfolio liquidation disbursements.
Discussion of Financial Results
Operating income of ~~$909~~$849 million ~~and operating margin of 37.1%~~ increased ~~$94~~$20 million ~~and 90 bps, respectively,~~ from the ~~prior year quarter~~three months ended June 30, 2012, reflecting ~~revenue growth~~record base fees and strong performance fees, substantially offset by higher expenses, primarily due to the $124 million expense ~~discipline~~.~~The first quarter 2013 results included $33 million of compensation~~related to the Charitable Contribution and severance costs associated with the alignment of staffing with the Company’s strategic priorities and growth opportunities. First quarter 2013 results also included $18 million of launch costs for the $700 million Multi-Sector Income Trust closed-end fund launched in February 2013.higher revenue-related expenses. Non-operating income (expense), less net income (loss) attributable to NCI ~~decreased $13~~increased $138 million primarily due to ~~higher interest expense resulting from long-term debt issuances in May 2012~~the $39 million pre-tax gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and ~~lower~~higher net positive marks on investments during the current quarter ~~ended March 31, 2013~~ compared with the ~~quarter ended March 31, 2012.~~prior year quarter. Earnings per diluted common share rose ~~$0.48,~~$1.11, or ~~15%~~36%, compared with the prior year quarter ~~ended March 31, 2012~~ due to higher net income and the benefit of share repurchases.
Operating income of $1,758 million increased $114 million from the six months ended June 30, 2012, reflecting growth in base fees and strong performance fees, partially offset by higher expenses, primarily due to the $124 million expense related to the Charitable Contribution and higher revenue-related expenses. The results for the six months ended June 30, 2013 also included $42 million of organizational alignment costs and $18 million of closed-end fund launch costs. Non-operating income (expense), less net income (loss) attributable to NCI increased $125 million due to the $39 million pre-tax gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and higher net positive marks on investments during the six months ended June 30, 2013 compared with the prior year period. Earnings per diluted common share rose $1.59, or 26%, compared with the prior year period due to higher net income and the benefit of share repurchases.
Additional financial information concerning the Company’s results of operations for the ~~quarters~~three and six months ended ~~March 31,~~June 30, 2013 and 2012 is discussed below. For a further description of the Company’s revenues and expenses, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”).
Revenue
Revenues increased ~~$200~~$253 million, or 9%11%, ~~compared with first~~from the prior year quarter and $453 million, or 10%, from the six months ended June 30, 2012, reflecting base fee growth and strong performance fees.

Three Months Ended
March 31, Three Months Ended
June 30, Six Months Ended
June 30,
(in millions)   2013     2012     Variance     2013     2012     2013     2012
Investment advisory, administration fees and securities lending revenue:

Equity:

Active
$ 433        $ 453    ($20 )     $ 432        $ 429        $ 865        $ 882
iShares
571    473    98    584    467    1,155    940
Fixed income:

Active
312    279    33    322    285    634    564
iShares
116    98    18    120    107    236    205
Multi-asset class
248    243    5
Multi-asset
253    236    501    479
Alternatives:

Core
136    135    1    136    130    272    265
Currency and commodities
30    34    (4 ) 25    32    55    66

Sub-total
1,846    1,715    131    1,872    1,686    3,718    3,401
Non-ETF Index⁽¹⁾:

Equity
140    123    17    161    156    301    279
Fixed income
57    50    7    61    60    118    110

Sub-total Non-ETF Index
197    173    24    222    216    419    389

Long-term
2,043    1,888    155    2,094    1,902    4,137    3,790
Cash management
86    89    (3 ) 83    88    169    177

Total
2,129    1,977    152
Total base fees
2,177    1,990    4,306    3,967
Investment advisory performance fees:

Equity
17    19    (2 ) 17    3    34    22
Fixed income
1    6    (5 ) 9    10    10    16
Multi-asset class
7    3    4
Multi-asset
3    1    10    4
Alternatives
83    52    31    60    27    143    79

Total
108    80    28    89    41    197    121
BlackRock Solutionsand advisory
126    123    3    138    131    264    254
Distribution fees
17    19    (2 ) 18    20    35    39
Other revenue
69    50    19    60    47    129    97

Total revenue
$ 2,449        $ 2,249        $   200        $ 2,482        $ 2,229        $ 4,931        $ 4,478

⁽¹⁾
Certain prior period information has been reclassified to conform to the current period presentation.
Three Months Ended June 30, 2013 Compared with Three Months ended June 30, 2012.
Investment advisory, administration fees and securities lending revenue of ~~$2.1 billion~~$2,177 million in ~~first~~the second quarter 2013 increased ~~$152~~$187 million, or 9%, from ~~$2.0 billion~~$1,990 million in ~~first~~the second quarter 2012
due to growth in long-term average AUM. Securities lending fees were ~~$112~~$136 million and ~~$111~~$157 million in the ~~first~~second quarter 2013 and ~~first quarter~~ 2012, respectively.
The decrease in securities lending fees primarily was driven by lower spreads.
Investment advisory performance fees ~~were $108~~ increased $48 million ~~in first~~from the prior year quarter, ~~2013 compared with $80 million in first quarter 2012,~~ primarily reflecting higher fees from alternative ~~products, including single-strategy hedge funds.~~products.
BlackRock Solutions and advisory revenue in ~~first~~the second quarter 2013 totaled ~~$126~~$138 million, including $98 million of revenue from theAladdin^® business, compared with ~~$123~~$131 million in ~~first~~the prior year quarter, ~~2012,~~which included $95 million of revenue from theAladdin business. The increase primarily ~~reflecting~~reflected higher revenue fromAladdin^® mandates ~~more than offsetting the decline in revenues associated with the run off of assets related to~~and higher one-time revenue from advisory assignments.
Other revenue increased ~~$19~~$13 million, largely reflecting higher ~~transition management service fees and higher~~ earnings from certain advisory company equity method investments.
Six Months Ended June 30, 2013 Compared with Six Months ended June 30, 2012.
Investment advisory, administration fees and securities lending revenue of $4,306 million for the six months ended June 30, 2013 increased $339 million from $3,967 million in the prior year period due to growth in long-term average AUM. Securities lending fees were $248 million and $268 million in the six months ended June 30, 2013 and June 30, 2012, respectively. The decrease in securities lending fees primarily was driven by lower spreads.
The table below lists the asset type mix of investment advisory, administration fees and securities lending revenue (collectively, “base fees”) and mix of average AUM by asset class:

Three Months Ended June 30, Six Months Ended June 30,
Mix of Base Fees
Three Months Ended
March 31, Mix of Average AUM by
Asset Class⁽¹⁾
March 31, Mix of Base Fees Mix of Average
AUM by
Asset Class⁽¹⁾ Mix of Base Fees Mix of Average
AUM by
Asset Class⁽²⁾
    2013         2012     2013 2012   2013     2012     2013     2012     2013     2012     2013     2012
Equity:

Active
20%    22%    7%        8%        20%    22%    7%    8%    20%    22%    7%    8%
iShares
27%    24%    15%        13%        26%    23%    15%    13%    27%    24%    15%    13%
Fixed income:

Active
15%    14%    17%        18%        15%    14%    17%    18%    15%    14%    17%    18%
iShares
5%    5%    5%        5%        6%    5%    5%    5%    5%    5%    5%    5%
Multi-asset class
12%    12%    7%        7%
Multi-asset
12%    12%    7%    7%    12%    12%    7%    7%
Alternatives:

Core
6%    7%    2%        2%        6%    7%    2%    2%    6%    7%    2%    2%
Currency and commodities
1%    2%    1%        1%        1%    2%    1%    1%    1%    2%    1%    1%

Sub-total
86%    86%    54%        54%        86%    85%    54%    54%    86%    86%    54%    54%
Non-ETF Index:

Equity
7%    6%    28%        26%        7%    8%    29%    26%    7%    7%    29%    26%
Fixed income
3%    3%    11%        13%        3%    3%    10%    13%    3%    3%    10%    13%

Sub-total Non-ETF Index:
10%    9%    39%        39%        10%    11%    39%    39%    10%    10%    39%    39%

Long-term
96%    95%    93%        93%        96%    96%    93%    93%    96%    96%    93%    93%
Cash management
4%    5%    7%        7%        4%    4%    7%    7%    4%    4%    7%    7%

Total excluding Advisory AUM
    100%        100%            100%                100%            100%        100%        100%        100%        100%        100%        100%        100%

⁽¹⁾⁽¹⁾
Average AUM ~~represents a two-point~~is calculated as the average of ~~quarter-end~~the month-end spot ~~AUM.~~AUM amounts for the trailing four months.
⁽²⁾
Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing seven months.
For the quarter and six months ended ~~March 31,~~June 30, 2013, non-ETF index equity and non-ETF index fixed income were only 10%, respectively, of total base fees; however, AUM associated with these base fees represented 39% of total average AUM.
Investment advisory performance fees were $197 million in the six months ended June 30, 2013 compared with $121 million in the prior year period, primarily reflecting higher fees from alternative products.
BlackRock Solutions and advisory revenue in the six months ended June 30, 2013 totaled $264 million, including $197 million of revenue from theAladdin business, compared with $254 million in the prior year period, which included $183 million of revenue from theAladdin business. The increase primarily reflected higher revenue fromAladdin mandates, partially offset by the decline in revenues associated with the run off of assets related to advisory assignments.
Other revenue increased $32 million, largely reflecting higher earnings from certain advisory company equity method investments and higher transition management service fees.
Expenses
Expenses increased $233 million, or 17%, from the prior year quarter and $339 million, or 12%, from the six months ended June 30, 2012, primarily reflecting the $124 million related to the Charitable Contribution.

Three Months Ended
March 31,
(in millions) 2013 2012 Variance
Expenses, GAAP:

Employee compensation and benefits
      $ 905          $ 825          $ 80
Distribution and servicing costs
91    95    (4 )
Amortization of deferred sales commissions
12    16    (4 )
Direct fund expenses
161    152    9
General and administration:

Marketing and promotional
89    83    6
Occupancy and office related
64    64    -
Portfolio services
50    46    4
Technology
38    38    -
Professional services
28    27    1
Communications
9    10    (1 )
Closed-end fund launch costs
16    -    16
Other general and administration
37    39    (2 )

Total general and administration expenses
331    307    24
Amortization of intangible assets
40    39    1

Total expenses, GAAP
      $ 1,540          $ 1,434          $ 106

Less non-GAAP expense adjustments⁽¹⁾:

Employee compensation and benefits:

PNC LTIP funding obligation
8    5    3
Compensation expense related to appreciation (depreciation) on deferred compensation plans
4    5    (1 )

Total non-GAAP expense adjustments
12    10    2
Expenses, as adjusted:

Employee compensation and benefits
893    815    78
Distribution and servicing costs
91    95    (4 )
Amortization of deferred sales commissions
12    16    (4 )
Direct fund expenses
161    152    9
General and administration
331    307    24
Amortization of intangible assets
40    39    1

Total expenses, as adjusted
      $   1,528          $   1,424          $   104

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2013 2012 2013 2012
Expenses, GAAP:

Employee compensation and benefits
      $ 864          $ 786          $ 1,769          $ 1,611
Distribution and servicing costs
90    93    181    188
Amortization of deferred sales commissions
12    14    24    30
Direct fund expenses
162    144    323    296
General and administration:

Marketing and promotional
106    107    195    190
Occupancy and office related
64    59    127    123
Portfolio services
48    51    98    96
Technology
40    40    78    77
Professional services
31    26    59    52
Communications
10    10    19    20
Closed-end fund launch costs
-    -    16    -
Charitable Contribution
124    -    124    -
Other general and administration
42    31    80    73

Total general and administration expenses
465    324    796    631
Amortization of intangible assets
40    39    80    78

Total expenses, GAAP
      $   1,633          $   1,400          $   3,173          $   2,834

Less non-GAAP expense adjustments⁽¹⁾:

Employee compensation and benefits:

PNC LTIP funding obligation
9    6    17    11
Compensation expense related to appreciation (depreciation) on deferred compensation plans
-    (3 ) 4    2
General and administration:

Charitable Contribution
124    -    124    -

Total non-GAAP expense adjustments
133    3    145    13
Expenses, as adjusted:

Employee compensation and benefits
855    783    1,748    1,598
Distribution and servicing costs
90    93    181    188
Amortization of deferred sales commissions
12    14    24    30
Direct fund expenses
162    144    323    296
General and administration
341    324    672    631
Amortization of intangible assets
40    39    80    78

Total expenses, as adjusted
      $   1,500          $   1,397          $   3,028          $   2,821

⁽¹⁾
See Non-GAAP Financial Measures for further information on as adjusted items.
~~Total GAAP expenses increased $106 million to $1,540 million in first quarter~~
Three Months Ended June 30, 2013 ~~from $1,434 million in first quarter~~Compared with Three Months ended June 30, 2012.
Employee compensation and benefits expense increased ~~$80~~$78 million, or 10%, to ~~$905~~$864 million in ~~first~~the current quarter ~~2013~~ from ~~$825~~$786 million in ~~first~~the prior year quarter ~~2012~~ reflecting higher incentive compensation driven by higher operating income, including higher performance fees. ~~The current quarter also reflected the organizational alignment costs of $33 million.~~ Employees at ~~March 31,~~June 30, 2013 totaled approximately ~~10,600~~10,700 compared with approximately 9,900 at ~~March 31,~~June 30, 2012.
Distribution and servicing costs totaled ~~$91~~$90 million in ~~first~~the current quarter ~~2013~~ compared with ~~$95~~$93 million in ~~first quarter 2012.~~the prior year quarter. These costs included payments to Bank of America/Merrill Lynch under ~~the~~a global distribution agreement and PNC, as well as other third parties, primarily associated with the distribution and servicing of client investments in certain BlackRock products.
~~Distribution and servicing costs for first quarter~~ The three months ended June 30, 2013 and 2012 included $47 million and ~~$48~~$49 million, respectively, of costs attributable to Bank of America and affiliates.
Direct fund expenses increased $18 million, reflecting an increase in average AUM where BlackRock pays certain non-advisory expenses of certain sponsored funds.
General and administration expenses increased ~~$24~~$141 million, largely driven by the $124 million related to the Charitable Contribution. Amounts related to the Charitable Contribution have been excluded from as adjusted results.
Six Months Ended June 30, 2013 Compared with Six Months ended June 30, 2012.
Employee compensation and benefits expense increased $158 million, or 10%, to $1,769 million in the six months ended June 30, 2013 from $1,611 million in the prior year period reflecting higher incentive compensation driven by higher operating income, including higher performance fees and higher headcount. The six months ended June 30, 2013 also reflected organizational alignment costs of $42 million.
Distribution and servicing costs totaled $181 million in the six months ended June 30, 2013 compared with $188 million in the six months ended June 30, 2012. These costs included payments to Bank of America/Merrill Lynch under a global distribution agreement and PNC, as well as other third parties, primarily associated with the distribution and servicing of client investments in certain BlackRock products. The six months ended June 30, 2013 and 2012 included $94 million and $97 million, respectively, of costs attributable to Bank of America and affiliates.
Direct fund expenses increased $27 million, reflecting an increase in average AUM where BlackRock pays certain non-advisory expenses of the funds.
General and administration expenses increased $165 million, largely driven by the $124 million related to the Charitable Contribution and closed-end fund launch costs of $16 million (excluding $2 million included in employee compensation and benefits expense). The financial impact related to the Charitable Contribution has been excluded from as adjusted results.
Non-operating Results
Non-operating income (expense), less net income (loss) attributable to NCI for the ~~quarters~~three and six months ended ~~March 31,~~June 30, 2013 and 2012 was as follows:

Three Months
Ended
March 31,

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions)   2013     2012     Variance       2013         2012         2013         2012

Non-operating income (expense), GAAP basis
$ 41      $ 23    $  18    $69      ($40)    $110      ($17)
Less: Net income (loss) attributable to NCI⁽¹⁾
34              3                  31    (23)            6              11              9

Non-operating income (expense)⁽²⁾
7      20    (13)            92   (46)    99      (26)
Gain related to the Charitable Contribution
(80)    - (80)    -
Compensation expense related to (appreciation) depreciation on deferred compensation plans
(4)    (5 ) 1    - 3      (4)    (2)

Non-operating income (expense), as adjusted⁽²⁾
$ 3      $ 15    ($12)    $12      ($43)    $15      ($28)

⁽¹⁾
Amounts included losses of $23 million and gains of ~~$27 million and losses of $12~~$11 million attributable to consolidated variable interest entities (“VIEs”) for the ~~quarters~~three months ended ~~March 31,~~June 30, 2013 and 2012, respectively. Amounts included gains of $4 million and a loss of $1 million attributable to consolidated VIEs for the six months ended June 30, 2013 and 2012, respectively.
⁽²⁾
Net of net income (loss) attributable to NCI.
The components of non-operating income (expense), less net income (loss) attributable to NCI, for the ~~quarters~~three and six months ended ~~March 31,~~June 30, 2013 and 2012 were as follows:

Three Months Ended
March 31,

Three Months Ended
June 30, Six Months Ended
June 30,
(in millions) 2013 2012     Variance       2013         2012         2013         2012

Net gain (loss) on investments⁽¹⁾

Private equity
$19    $21    ($2)    $4    ($4) $23    $17
Real estate
3    1    2    7    3 10    4
Distressed credit/mortgage funds
19    28    (9)    4    - 23    28
Hedge funds/funds of hedge funds
3    6    (3)    5    4 8    10
Other investments⁽²⁾
7    (1)    8    2    (2) 9    (3)

Sub-total
51    55    (4)    22    1 73    56
Gain related to PennyMac IPO
39    -    39    -
Gain related to the Charitable Contribution
80    -    80    -
Investments related to deferred compensation plans
4    5    (1)    -    (3) 4    2

Total net gain (loss) on investments
55    60    (5)            141    (2)         196            58
Interest and dividend income
6    9    (3)    4            8 10    17
Interest expense
(54)    (49)    (5)    (53)    (52) (107)    (101)

Net interest expense
(48)    (40)    (8)    (49)    (44) (97)    (84)

Total non-operating income (expense)⁽¹⁾
7    20    (13)    92    (46) 99    (26)
Gain related to the Charitable Contribution
(80)    - (80)    -
Compensation expense related to (appreciation) depreciation on deferred compensation plans
(4)    (5)    1    -    3 (4)    (2)

Non-operating income (expense), as adjusted⁽¹⁾
$3    $15    ($12)    $12    ($43) $15    ($28)

⁽¹⁾
Net of net income (loss) attributable to NCI.
⁽²⁾
Amounts included net gains (losses) related to equity and fixed income investments, and BlackRock’s seed capital hedging program.
Three Months Ended June 30, 2013 Compared with Three Months ended June 30, 2012.
Net gains on investments of ~~$51~~$141 million in ~~first quarter~~the three months ended June 30, 2013 ~~decreased $4~~increased $143 million from ~~first~~the prior year quarter ~~2012~~ due to ~~lower~~the $39 million gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and higher net positive marks.
Net interest expense increased $8$5 million from ~~first quarter 2012, primarily due to long-term debt issuances in May~~the three months ended June 30, 2012. For further information on the Company’s long-term debt, seeLiquidity and Capital Resources herein.
Six Months Ended June 30, 2013 Compared with Six Months ended June 30, 2012.
Net gains on investments of $196 million in the six months ended June 30, 2013 increased $138 million from the prior year period due to the $39 million gain related to the PennyMac IPO, the $80 million gain related to the Charitable Contribution and higher net positive marks.
Net interest expense increased $13 million from the six months ended June 30, 2012, primarily due to long-term debt issuances in May 2012, partially offset by long-term debt repayments.
Income Tax Expense
Income tax expense for the ~~quarters~~three and six months ended ~~March 31,~~June 30, 2013 and 2012 was as follows:

   GAAP    As Adjusted
(in millions) GAAP
Three Months Ended
March 31,    As adjusted
Three Months Ended
March 31,    Three Months Ended
June 30,    Six Months Ended
June 30,    Three Months Ended
June 30,    Six Months Ended
June 30,
    2013         2012            2013         2012        2013    2012    2013    2012    2013    2012    2013    2012
Income before income taxes⁽¹⁾
$916    $835       $924    $840       $941       $783       $1,857       $1,618       $994       $789       $1,918       $1,629
Income tax expense
$284    $263       $287    $265       $212       $229       $496       $492       $272       $231       $559       $496
Effective tax rate
31.0%    31.5%       31.0%    31.5%       22.5%       29.3%       26.7%       30.4%       27.3%       29.3%       29.1%       30.4%

⁽¹⁾
Net of net income (loss) attributable to NCI.
The three and six months ended June 30, 2013 included the approximately $57 million tax benefit recognized in connection with the Charitable Contribution, which was excluded from as adjusted results. In addition, the current period included a tax benefit of approximately $29 million, primarily due to the realization of loss carryforwards.
Balance Sheet Overview
As Adjusted Balance Sheet
The following table presents a reconciliation of the ~~Company’s~~ condensed consolidated statement of financial condition presented on a GAAP basis to the ~~Company’s~~ condensed consolidated statement of financial condition, excluding the impact of separate account assets and separate account collateral held under securities lending agreements (directly related to lending ~~securities held by~~ separate account ~~assets)~~securities) and separate account liabilities and separate account collateral liabilities under securities lending agreements, consolidated VIEs and consolidated sponsored investment funds.
The Company presents the as adjusted balance sheet as additional information to enable investors to ~~eliminate gross presentation of~~exclude certain assets that have equal and offsetting liabilities or ~~non-controlling~~noncontrolling interests ~~and~~that ultimately do not have an impact on stockholders’ equity (excluding appropriated retained earnings related to consolidated collateralized loan obligations (“CLOs”)) or cash flows. Management ~~reviews~~views the ~~Company’s~~ as adjusted balance sheet, a non-GAAP financial measure, as an economic presentation of its total assets and liabilities; however, it does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
Separate Account Assets and Liabilities and Separate Account Collateral Held under Securities Lending Agreements
~~The separate~~Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. ~~In accordance with GAAP, the~~The Company records equal and offsetting separate account liabilities. The separate account assets are not available to creditors of the Company and the holders of the pension contracts have no recourse to the Company’s assets. The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the ~~Company’s~~ condensed consolidated
statements of income. While BlackRock has no economic interest in these assets or liabilities, BlackRock earns an investment advisory fee for the service of managing these assets on behalf of the clients.
In addition, the Company records on its condensed consolidated statements of financial condition the separate account collateral received under securities lending arrangements as its own asset in addition to an equal and offsetting separate account collateral liability for the obligation to return the collateral.
Consolidated VIEs
At ~~March 31,~~June 30, 2013, BlackRock’s consolidated VIEs included CLOs and one investment ~~funds.~~fund. The assets of these VIEs are not available to creditors of the Company and the Company has no obligation to settle the liabilities of the VIEs. While BlackRock has no material economic interest in these assets or liabilities, BlackRock earns an investment advisory fee, as well as a potential performance fee, for the service of managing these assets on behalf of clients.
Consolidated Sponsored Investment Funds

March 31, 2013
Segregated client assets
generating advisory fees in
which BlackRock has no
economic interest or
liability
(in millions) GAAP
Basis Separate
Account
Assets/
Collateral Consolidated
VIEs Consolidated
Sponsored
Investment
Funds As
Adjusted
Assets

Cash and cash equivalents
$ 3,942    $ —   $ —   $ 117    $ 3,825
Accounts receivable
2,618    —   —   —   2,618
Investments
1,711    —   —   99    1,612
Assets of consolidated VIEs
2,804    —   2,804    —   —
Separate account assets and separate account collateral held under securities lending agreements
158,241    158,241    —   —   —
Other assets⁽¹⁾
1,156    —   —   15    1,141

Sub-total
170,472      158,241        2,804           231    9,196
Goodwill and intangible assets, net
30,266    —   —   —     30,266

Total assets
$ 200,738    $ 158,241    $ 2,804    $ 231    $ 39,462

Liabilities

Accrued compensation and benefits
$ 602    $ —   $ —   $ —   $ 602
Accounts payable and accrued liabilities
1,657    —   —   —   1,657
Liabilities of consolidated VIEs
2,607    —   2,607    —   —
Long-term borrowings
5,687    —   —   —   5,687
Separate account liabilities and separate account collateral liabilities under securities lending agreements
158,241    158,241    —   —   —
Deferred income tax liabilities
5,379    —   —   —   5,379
Other liabilities
898    —   —   51    847

Total liabilities
175,071    158,241    2,607    51    14,172

Equity

Total stockholders’ equity⁽²⁾
25,345    —   55    —   25,290
Non-controlling interests
322    —   142    180    —

Total equity
25,667    —   197    180    25,290

Total liabilities and equity
$ 200,738    $ 158,241    $ 2,804    $ 231    $ 39,462

The Company consolidates certain sponsored investment funds primarily because it is deemed to control such funds. The Company is not readily able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company is not readily able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in the Company’s operations.
June 30, 2013
Segregated client assets
generating advisory fees in
which BlackRock has no
economic interest or
liability
(in millions) GAAP
Basis Separate
Account
Assets/
Collateral Consolidated
VIEs Consolidated
Sponsored
Investment
Funds As
Adjusted
Assets

Cash and cash equivalents
$ 3,668    $ —   $ —   $ 185    $ 3,483
Accounts receivable
2,249    —   —   —   2,249
Investments
1,773    —   —   52    1,721
Assets of consolidated VIEs
2,285    —   2,285    —   —
Separate account assets and separate account collateral held under securities lending agreements
152,272    152,272    —   —   —
Other assets⁽¹⁾
1,277    —   —   16    1,261

Sub-total
163,524      152,272        2,285           253    8,714
Goodwill and intangible assets, net
30,221    —   —   —     30,221

Total assets
$ 193,745    $ 152,272    $ 2,285    $ 253    $ 38,935

Liabilities

Accrued compensation and benefits
$ 948    $ —   $ —   $ —   $ 948
Accounts payable and accrued liabilities
1,271    —   —   —   1,271
Liabilities of consolidated VIEs
2,238    —   2,238 —   —
Long-term borrowings
4,938    —   —   —   4,938
Separate account liabilities and separate account collateral liabilities under securities lending agreements
152,272    152,272    —   —   —
Deferred income tax liabilities
5,318    —   —   —   5,318
Other liabilities
935    —   —   41    894

Total liabilities
167,920    152,272    2,238    41    13,369

Equity

Total stockholders’ equity⁽²⁾
25,589    —   23    —   25,566
Noncontrolling interests
236    —   24    212    —

Total equity
25,825    —   47    212    25,566

Total liabilities and equity
$ 193,745    $ 152,272    $ 2,285    $ 253    $ 38,935

⁽¹⁾
Amounts include property and equipment and other assets.
⁽²⁾⁽²⁾
GAAP amount includes ~~$55~~$23 million of appropriated retained earnings related solely to consolidated CLOs in which the Company has no equity exposure.
The following table presents selected significant components of BlackRock’s GAAP condensed consolidated statements of financial condition at ~~March 31,~~June 30, 2013 and December 31, 2012:

(in millions)    March 31,
2013    December 31,
2012    Variance    June 30,
2013    December 31,
2012
Assets:

Cash and cash equivalents
   $ 3,942       $ 4,606       ($664 )    $ 3,668       $ 4,606
Accounts receivable
   2,618       2,250       368       2,249       2,250
Investments
   1,711       1,750       (39 )    1,773       1,750
Goodwill and intangible assets, net
   30,266       30,312       (46 )    30,221       30,312
Other assets⁽¹⁾
   1,156       1,183       (27 )    1,277       1,183
Liabilities:

Accrued compensation and benefits
   602       1,547       (945 )    948       1,547
Accounts payable and accrued liabilities
   1,657       1,055           602       1,271       1,055
Borrowings⁽²⁾
   5,687       5,787       (100 )    4,938       5,787
Deferred income tax liabilities
   5,379       5,293       86       5,318       5,293
Other liabilities
   898       858       40       935       858
Stockholders’ equity
       25,345           25,403       (58 )        25,589       25,403

⁽¹⁾
Amounts include property and equipment and other assets.
⁽²⁾
Amounts include long-term borrowings at both ~~March 31,~~June 30, 2013 and December 31, 2012 and $100 million of short-term borrowings at December 31, 2012.
The following discussion summarizes the significant changes in assets and liabilities. The discussion does not include changes related to assets and liabilities that are equal and offsetting and have no impact on BlackRock’s stockholders’ equity.
Cash and Cash Equivalents.Cash and cash equivalents at ~~March 31,~~June 30, 2013 and December 31, 2012 included ~~$117~~$185 million and $133 million, respectively, of cash held by consolidated sponsored investment funds. SeeLiquidity and Capital Resources for details on the change in cash and cash equivalents during 2013.
~~Accounts Receivable.~~Investments.~~Accounts receivable~~Investments totaled $1,773 million at ~~March 31,~~June 30, 2013 ~~increased $368~~and $1,750 million ~~from~~at December 31, 2012, primarily reflecting an increase in unit trust receivables, (substantially offset by an increase in unit trust payables recorded within accounts payable and accrued liabilities), offset by the collection of performance fee revenue earned in the fourth quarter 2012.
~~Investments.~~~~BlackRock reports its investments on a GAAP basis, which includes~~ Investments include investments that are held by sponsored investment funds deemed to be controlled by ~~BlackRock in accordance with GAAP. As a result, management~~BlackRock. Management reviews BlackRock’s investments on an “economic” basis, which eliminates the portion of investments that does not impact BlackRock’s book value. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.
The Company presents total investments, as adjusted, to enable investors to understand the portion of its investments that is owned by the Company, net of NCI, as a gauge to measure the impact of changes in net non-operating gain (loss) on investments to net income (loss) attributable to BlackRock.
The Company further presents ~~total~~ net “economic” investment exposure, net of deferred compensation investments and hedged investments, to reflect another gauge for investors as the economic impact of investments held pursuant to deferred compensation arrangements is substantially offset by a change in compensation expense and the impact of hedged investments is substantially mitigated by ~~total return~~ swap hedges. Carried interest capital allocations are excluded as there is no impact to BlackRock’s stockholders’ equity until such amounts are realized as performance fees. Finally, the Company’s regulatory investment in Federal Reserve Bank stock, which is not
subject to market or interest rate risk, is excluded from the Company’s net economic investment exposure.

(in millions)    March 31,
2013    December 31,
2012    June 30,
2013 December 31,
2012
Total investments, GAAP
           $ 1,711               $ 1,750               $ 1,773         $ 1,750
Investments held by consolidated sponsored investment funds⁽¹⁾
   (564)       (524)       (627 ) (524 )
Net exposure to consolidated investment funds
   465       430       575 430






Total investments, as adjusted
   1,612       1,656       1,721 1,656
Federal Reserve Bank stock
   (90)       (89)       (92 ) (89 )
Carried interest
   (127)       (85)       (130 ) (85 )
Deferred compensation investments
   (66)       (62)       (67 ) (62 )
Hedged investments
   (127)       (209)       (148 ) (209 )






Total “economic” investment exposure
           $         1,202               $         1,211
Net “economic” investment exposure
           $         1,284            $         1,211






⁽¹⁾
At ~~March 31,~~June 30, 2013 and December 31, 2012, approximately ~~$564~~$627 million and $524 million, respectively, of BlackRock’s total GAAP investments were ~~maintained~~held in sponsored investment funds that were deemed to be controlled by BlackRock in accordance with GAAP, and, therefore, are consolidated even though BlackRock may not economically own a majority of such funds.
The following table represents the carrying value of the Company’s economic investment exposure, by asset type, at June 30, 2013 and December 31, 2012:
(in millions)    June 30,
2013    December 31,
2012
Private equity
   $         304        $         298
Real estate
   123        122
Distressed credit/mortgage funds
   194        214
Hedge funds/funds of hedge funds
   170        159
Other investments⁽¹⁾
   493        418




Net “economic” investment exposure
   $ 1,284        $ 1,211




⁽¹⁾
Other investments primarily include seed investments in fixed income and equity funds/strategies as well as U.K. government securities held for regulatory purposes.
As adjusted investment activity for the ~~three~~six months ended ~~March 31,~~June 30, 2013 was as follows:

(in millions)
Investments as adjusted, December 31, 2012
   $ 1,656
Purchases/capital contributions
389
Sales/maturities
   ~~(205)~~(336)
Distributions⁽¹⁾
   ~~(54)~~
~~Purchases/capital contributions~~
~~125~~(81)
Market valuations/earnings from equity method investments
   48
Carried interest capital allocations
   4245


Investments as adjusted, ~~March 31,~~June 30, 2013
   $         ~~1,612~~1,721


⁽¹⁾
Amount represents return of capital and return on ~~investments~~investments.
~~The following table represents the carrying value of the Company’s economic investment exposure, by asset type, at March 31, 2013 and December 31, 2012:~~

(in millions)    March 31,
2013    December 31,
2012    Variance
Private equity
   $ 306           $ 298                 $ 8
Real estate
   120           122           (2)
Distressed credit/mortgage funds
   202           214           (12)
Hedge funds/funds of hedge funds
   164           159                 5
Other investments⁽¹⁾
   410           418           (8)






Total “economic” investment exposure
   $         1,202           $         1,211           ($9)






⁽¹⁾
~~Other investments primarily include seed investments in fixed income and equity funds/strategies as well as U.K. government securities held for regulatory purposes.~~
The following table represents investments, as adjusted at ~~March 31,~~June 30, 2013:

(in millions) Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other
Investments Not
Held at Fair
Value⁽¹⁾ Investments at
March 31,
2013 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Other
Investments Not
Held at Fair
Value⁽¹⁾ Investments at
June 30,
2013
Total investments, as adjusted⁽²⁾
$           477    $           211    $             562    $                   362    $               1,612    $           496    $           302    $               559    $               364    $                   1,721

⁽¹⁾
Amount includes investments held at cost or amortized cost, carried interest and equity method investments, which include investment companies, which ~~in accordance with GAAP~~ are not accounted for under a fair value measure. ~~In accordance with GAAP, certain~~Certain equity method investees do not account for both their financial assets and financial liabilities under fair value measures, therefore, the Company’s investment in such equity method investees may not represent fair value.
⁽²⁾
Amounts include BlackRock’s portion of cash and cash equivalents, other assets and liabilities that are consolidated from non-VIE sponsored investment funds. See Note 5,Fair Value Disclosures, to the ~~Company’s~~ condensed consolidated financial statements contained in Part I, Item 1 of this filing, for total GAAP investments.
Goodwill and Intangible Assets.Goodwill and intangible assets at ~~March 31,~~June 30, 2013 decreased ~~$46~~$91 million from December 31, 2012 primarily due to ~~$40~~$80 million of intangible assets amortization expense.
Other Assets.Other assets at ~~March 31,~~June 30, 2013 ~~decreased $27~~increased $94 million from December 31, 2012, primarily related to an increase in current taxes receivable and higher earnings from certain advisory company equity method investments, partially offset by a decrease in property and ~~equipment and current taxes receivable, partially offset by higher earnings from certain investments.~~equipment.
Accrued Compensation and Benefits.Accrued compensation and benefits at ~~March 31,~~June 30, 2013 decreased ~~$945~~$599 million from December 31, 2012, primarily due to 2012 incentive compensation cash payments in the first quarter of 2013, partially offset by the effect of 2013 incentive compensation accruals.
Accounts Payable and Accrued Liabilities.Accounts payable and accrued liabilities at ~~March 31,~~June 30, 2013 increased ~~$602~~$216 million from December 31, 2012, due to higher unit trust payables (substantially offset by an increase in unit trust receivables recorded within accounts receivable)~~, higher current taxes payable~~ and increased accruals, including direct fund and marketing expenses.
Borrowings. Borrowings at ~~March 31,~~June 30, 2013 decreased ~~$100~~$849 million from December 31, 2012 resulting from the ~~repayment~~repayments of $750 million and $100 million of long-term and short-term ~~borrowings.~~borrowings, respectively.
Deferred Income Tax Liabilities.Net deferred income tax liabilities at ~~March 31,~~June 30, 2013 increased ~~$86~~$25 million, primarily as a result of the effects of temporary differences associated with stock compensation and investment income. In addition, the increase included revaluation of certain deferred income tax liabilities primarily due to the Charitable Contribution and realization of loss carryforwards.
Other Liabilities.Other liabilities at ~~March 31,~~June 30, 2013 increased ~~$40~~$77 million from December 31, 2012, primarily resulting from an increase in deferred carried ~~interest.~~interest and other operating liabilities.
Stockholders’ Equity.Total stockholders’ equity at ~~March 31,~~June 30, 2013 ~~decreased $58~~increased $186 million from December 31, 2012, primarily resulting from ~~$461~~$1,361 million of net income attributable to BlackRock, $231 million of stock-based compensation expense and $31 million of excess tax
benefits from vested stock-based compensation. The increase in stockholders’ equity was partially offset by $715 million of share repurchases, including ~~$250~~$500 million ~~(1.0~~(1.9 million shares) in open market transactions and ~~$211~~$215 million (0.9 million shares) of employee tax withholdings related to employee stock transactions, ~~$309~~$595 million of cash dividend payments and ~~$108~~$131 million of foreign currency translation adjustments. The decrease in stockholders’ equity was partially offset by $632 million of net income attributable to BlackRock, $127 million of stock-based compensation expense and $28 million of excess tax benefits from vested stock-based compensation.
Liquidity and Capital Resources
BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds and VIEs
~~In accordance with GAAP,~~ BlackRock consolidates certain BlackRock sponsored investment funds and CLOs, notwithstanding the fact BlackRock may only have a minority interest, if any, in these funds or CLOs. As a result, ~~BlackRock’s~~the condensed consolidated statements of cash flows include the cash flows of consolidated sponsored investment funds and CLOs. The Company uses an adjusted cash flow statement, which excludes the impact of consolidated sponsored investment funds and CLOs, as a supplemental non-GAAP measure to assess liquidity and capital requirements. The Company believes that its cash flows, excluding the impact of the consolidated sponsored investment funds and CLOs, provide investors with useful information on the cash flows of BlackRock relating to its ability to fund additional operating, investing and financing activities. BlackRock’s management does not advocate that investors consider such non-GAAP measures in isolation from, or as a substitute for, its cash flows presented in accordance with GAAP.
The following table presents a reconciliation of the condensed consolidated statements of cash flows presented on a GAAP basis to the consolidated statements of cash flows, excluding the impact of the cash flows of consolidated sponsored investment funds and consolidated VIEs:

(in millions) GAAP
Basis Impact on
Cash Flows
of Consolidated
Sponsored
Investment
Funds Impact on
Cash Flows
of
Consolidated
VIEs Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds and
VIEs
Cash and cash equivalents, December 31, 2012
$ 4,606      $ 133        $ —       $ 4,473
Cash flows from operating activities
190                    5        (34)       219
Cash flows from investing activities
31      (14)       —                 45
Cash flows from financing activities
(805)    (7)       34        (832)
Effect of exchange rate changes on cash and cash equivalents
(80)    —     —     (80)

Net change in cash and cash equivalents
(664)    (16)                   —     (648)

Cash and cash equivalents, March 31, 2013
$ 3,942      $ 117        $ —     $ 3,825

(in millions)    GAAP
Basis    Impact on
Cash Flows
of Consolidated
Sponsored
Investment
Funds    Impact on
Cash Flows
of
Consolidated
VIEs    Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds and
VIEs
Cash and cash equivalents, December 31, 2012
   $ 4,606      $ 133        $ —        $ 4,473
Cash flows from operating activities
   1,330                  20        140       1,170
Cash flows from investing activities
   10      (22)       —                    32
Cash flows from financing activities
   (2,193)    54        (140)       (2,107)
Effect of exchange rate changes on cash and cash equivalents
   (85)    —        —        (85)








Net change in cash and cash equivalents
   (938)    52                    —        (990)








Cash and cash equivalents, June 30, 2013
   $ 3,668      $ 185        $ —        $ 3,483








Sources of BlackRock’s operating cash primarily include investment advisory, administration fees and securities lending revenue, performance fees, revenue fromBlackRock Solutions and advisory products and services, other revenue and distribution fees.
BlackRock uses its cash to pay all operating expenses, interest and principal on the Company’s borrowings, income taxes, dividends on BlackRock’s capital stock, repurchases of the Company’s stock, capital expenditures and purchases of co-investments and seed investments.
Cash flows from operating activities, excluding the impact of consolidated sponsored investment funds and VIEs, primarily include the receipt of investment advisory and administration fees, securities lending revenue and other revenue offset by the payment of operating expenses incurred in the normal course of business, including the effect of first quarter cash payments related to year-end incentive compensation.
Cash inflows from investing activities, excluding the impact of consolidated sponsored investment funds and VIEs, for the ~~quarter~~six months ended ~~March 31,~~June 30, 2013 were ~~$45~~$32 million and primarily reflected ~~$130~~$224 million of net proceeds from sales and maturities of investments, ~~and $25 million of return of capital from equity method investees,~~ partially offset by ~~$92~~$184 million of investment purchases.
Cash outflows from financing activities, excluding the impact of consolidated sponsored investment funds and VIEs, for the ~~quarter~~six months ended ~~March 31,~~June 30, 2013 were ~~$832 million,~~$2.11 billion, primarily resulting from ~~$461~~$715 million of share repurchases, including ~~$250~~$500 million in open market transactions and ~~$211~~$215 million of employee tax withholdings related to employee stock transactions, ~~$309~~a $750 million repayment of long-term debt, $595 million of ~~payments for~~ cash ~~dividends~~dividend payments and a $100 million repayment of short-term debt. Cash outflows from financing activities were partially offset by cash inflows related to ~~$32~~$35 million of excess tax benefits from stock-based compensation.
The Company manages its financial condition and funding to maintain appropriate liquidity for the business. Liquidity resources at ~~March 31,~~June 30, 2013 and December 31, 2012 were as follows:

(in millions)    March 31,
2013    December 31,
2012    Variance    June 30,
2013    December 31,
2012
Cash and cash equivalents
   $ 3,942           $ 4,606           ($664)          $ 3,668    $ 4,606
Cash and cash equivalents held by consolidated sponsored investment funds⁽¹⁾
   (117)          (133)                16           (185)    (133)










Subtotal
   3,825           4,473           (648)
Sub-total
   3,483    4,473
Credit facility – undrawn
     3,990             3,685           305           3,990    3,685










Total liquidity
   $ 7,815           $ 8,158           ($343)          $         7,473    $         8,158










⁽¹⁾
The Company ~~may~~is not be able to access such cash to use in its operating activities.
Total liquidity decreased ~~$0.3 billion~~$685 million during the ~~quarter~~six months ended ~~March 31,~~June 30, 2013, primarily reflecting the $750 million repayment of long-term borrowings, cash payments of 2012 year-end incentive awards, ~~and~~ share repurchases, including ~~$250~~$500 million in open market transactions, and cash dividend payments, partially offset by positive operating cash flow and the increased aggregate commitment of the 2013 credit facility to $3.990 billion. ~~A portion of liquidity may be utilized to pay down the current portion of long-term debt maturing in 2013.~~
A significant portion of the Company’s ~~$1,612~~$1,721 million of total investments, as adjusted, is illiquid in nature and, as such, may not be readily convertible to cash.
Share Repurchase Approval.In January 2013, the Board of Directors approved an increase in the availability under the Company’s existing share repurchase program to allow for the repurchase of up to 10.2 million shares of BlackRock common stock.
The Company repurchased ~~1.0~~1.9 million common shares in open market transactions under the share repurchase program for approximately ~~$250~~$500 million during the ~~first quarter~~six months ended June 30, 2013. At ~~March 31,~~June 30, 2013, there were ~~9.2~~8.3 million shares still authorized to be repurchased.
Net Capital Requirements.The Company is required to maintain net capital in certain regulated subsidiaries within a number of jurisdictions, which is partially maintained by retaining cash and cash equivalent investments in those subsidiaries or jurisdictions. As a result, such subsidiaries of the Company may be restricted in their ability to transfer cash between different jurisdictions and to their parents. Additionally, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers.
BlackRock Institutional Trust Company, N.A. (“BTC”) is chartered as a national bank that does not accept client deposits and whose powers are limited to trust activities. BTC provides investment management services, including investment advisory and securities lending agency services to institutional investors and other clients. BTC is subject to regulatory capital and liquid asset requirements administered by the Office of the Comptroller of the Currency.
At ~~March 31,~~June 30, 2013, the Company was required to maintain approximately ~~$1,179~~$1,160 million compared with $1,209 million at December 31, 2012 in net capital in certain regulated subsidiaries, including BTC, entities regulated by the Financial ~~Services Authority (Financial~~ Conduct Authority and Prudential Regulation Authority ~~as of April 1, 2013)~~ in the United Kingdom and the Company’s broker-dealers, and was in compliance with all applicable regulatory minimum net capital requirements.
Short-Term Borrowings
The following describes the Company’s short-term borrowing ~~arrangements that the Company has access to utilize.~~arrangements.
2013 Revolving Credit Facility.In March 2013, the Company’s credit facility was amended to extend the maturity date by one year to March 2018 and the amount of the aggregate commitment was increased to $3.990 billion (the “2013 credit facility”). The 2013 credit facility permits the Company to request up to an additional $1.0 billion of borrowing capacity, subject to lender credit approval, increasing the overall size of the 2013 credit facility to an aggregate principal amount not to exceed $4.990 billion. Interest on borrowings outstanding accrues at a rate based on the applicable London Interbank Offered Rate plus a spread. The 2013 credit facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to earnings before interest, taxes, depreciation and amortization, where net debt equals total debt less unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 1 to 1 at ~~March 31,~~June 30, 2013.
The 2013 credit facility provides back-up liquidity, funds ongoing working capital for general corporate purposes and funds various investment opportunities. At ~~March 31,~~June 30, 2013, the Company had no amount outstanding under ~~this~~the 2013 credit facility.
Commercial Paper Program.In April 2013, BlackRock increased the maximum aggregate amount for which the Company could issue unsecured commercial paper notes (the “CP Notes”) on a private-placement basis up to a maximum aggregate amount outstanding at any time of $3.990 billion. The commercial paper program is currently supported by the 2013 credit facility.
At ~~March 31,~~June 30, 2013, ~~and December 31, 2012,~~ BlackRock had no CP Notes outstanding.
Long-Term Borrowings
At ~~March 31,~~June 30, 2013, the principal amount of long-term borrowings was ~~$5.7~~$4.950 billion. See Note 11,Borrowings, in the 2012 Form 10-K for more information on borrowings outstanding ~~as of~~at December 31, 2012. During the ~~quarter~~six months ended ~~March 31,~~June 30, 2013, the Company paid approximately ~~$24~~$102 million of interest on long-term borrowings. ~~Principal~~Future principal repayments and interest requirements at ~~March 31,~~June 30, 2013 were as follows:

(in millions)
Year
    Principal         Interest⁽¹⁾     Total
    Payments         Principal         Interest     Total
    Payments
2013
$   750    $   176    $   926
July-December 2013⁽¹⁾
$        - $     98 $     98
2014
          1,000    196              1,196            1,000 196           1,196
2015
750    156    906    750 156 906
2016
-    151    151    - 151 151
2017
700    151    851    700 151 851
2018
-    107    107    - 107 107
Thereafter
2,500                  235    2,735    2,500               235 2,735

Total
$5,700    $1,172    $6,872    $4,950 $1,094 $6,044

⁽¹⁾
~~Interest payable on~~In May 2013, the ~~2013~~Company fully repaid $750 million of floating rate notes ~~was calculated using a fixed rate of 1.03% as a result of the interest rate swap entered into in conjunction with the obligation.~~at maturity.
Investment Commitments.At ~~March 31,~~June 30, 2013, the Company had ~~$217~~$219 million of various capital commitments to fund sponsored investment funds, including funds of private equity funds, real estate funds, infrastructure funds, opportunistic funds and distressed credit funds. This amount excludes additional commitments made by consolidated funds of funds to underlying third-party funds as third-party ~~non-controlling~~noncontrolling interest holders have the legal obligation to fund the respective commitments of such funds of funds. Generally, the timing of the funding of these commitments is unknown and the commitments are callable on demand at any time prior to the expiration of the commitment. These unfunded commitments are not recorded on the condensed consolidated statements of financial condition. These commitments do not include potential future commitments approved by the Company, but which are not yet legally binding. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.
Carried Interest Claw-back.As a general partner in certain investment funds, including private equity partnerships and certain hedge funds, the Company may receive carried interest cash distributions from the partnerships in accordance with distribution provisions of the partnership agreements. The Company may, from time to time, be required to return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve a return as specified in the various partnership agreements. Therefore, BlackRock records carried interest subject to such claw-back provisions in investments, or cash to the extent that it is distributed, as a deferred carried interest liability on its condensed consolidated statements of financial condition. Carried interest is realized and recorded as performance fees on its condensed consolidated statements of income upon the earlier of the termination of the investment fund or when the likelihood of claw-back is mathematically improbable.
Indemnifications.On behalf of certain clients the Company lends securities to highly rated banks and broker-dealers. In these securities lending transactions, the borrower is required to provide and maintain collateral at or above regulatory minimums. Securities on loan are marked to market
daily to determine if the borrower is required to pledge additional collateral. BlackRock has issued certain indemnifications to certain securities lending clients against potential losses resulting
from a borrower’s failure to fulfill its obligations should the value of the collateral pledged by the borrower at the time of default be insufficient to cover the borrower’s obligations under the securities lending agreement. ~~The amount~~At June 30, 2013, the Company indemnified certain of its clients for their securities onlending loan ~~at March 31, 2013 and subject to indemnification was $101.2~~balances of approximately $101.1 billion. The Company held as agent, cash and securities totaling ~~$106.4~~$106.5 billion as collateral for indemnified securities on loan at ~~March 31,~~June 30, 2013. The fair value of these indemnifications was not material at ~~March 31,~~June 30, 2013. The Company currently expects indemnified balances ~~to continue~~ to increase over time.
While the collateral pledged by a borrower is intended to be sufficient to offset the borrower’s obligations to return securities borrowed and any other amounts owing to the lender under the relevant securities lending agreement, in the event of a borrower default, the Company can give no assurance that the collateral pledged by the borrower will be sufficient to fulfill such obligations. If the amount of such pledged collateral is not sufficient to fulfill such obligations to a client for whom the Company has provided indemnification, BlackRock would be responsible for the amount of the shortfall. These indemnifications cover only the collateral shortfall described above, and do not in any way guarantee, assume or otherwise insure the investment performance or return of any cash collateral vehicle into which securities lending cash collateral is invested.
Critical Accounting Policies
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. In addition to Consolidation of VIEs, Fair Value Measurements and Performance Fees/Carried Interest discussed below, see Note 2,Significant Accounting Policies, in the Company’s condensed consolidated financial statements contained in Part I, Item 1 of this filing and the Company’s Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in BlackRock’s 2012 Form 10-K and Note 2,Significant Accounting Policies, in the 2012 Form 10-K for further information.
Consolidation of Variable Interest Entities.    In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including collateralized debt obligations (“CDOs”) or CLOs and sponsored investment funds, which may be considered VIEs in accordance with GAAP. At ~~March 31,~~June 30, 2013, the Company’s VIEs primarily consisted of the following:
CLOs.    At ~~March 31,~~June 30, 2013, BlackRock was the manager of over 20 CLOs/CDOs and other securitization entities. ~~In accordance with consolidation accounting guidance for VIEs,~~ BlackRock was determined to be the primary beneficiary (“PB”) for certain of these CLOs, which required BlackRock to consolidate these VIEs. BlackRock was deemed to be the PB because it has the power to direct the activities of the CLOs that most significantly impact the entities’ economic performance and has the right to receive benefits that potentially could be significant to the VIE. At ~~March 31,~~June 30, 2013, the Company had ~~$2,652~~$2,261 million and ~~$2,597~~$2,238 million in assets and liabilities, respectively, on its condensed consolidated ~~statement~~statements of financial condition related to these consolidated CLOs. In addition, the Company recorded appropriated retained earnings for the difference between the assets and liabilities, as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLOs’ assets and liabilities. Changes in the fair value of the assets and liabilities of these CLOs have no impact on net income
attributable to BlackRock or its cash flows. Excluding outstanding management receivables, the Company has no risk of loss with its involvement with these VIEs.
Sponsored Private Equity ~~Funds~~Fund of Funds.    ~~As of March 31,~~At June 30, 2013, BlackRock was determined to be the PB of ~~several~~one investment ~~funds~~fund of funds and was deemed to absorb the majority of the variability due to its de-facto third-party relationships with other partners in the ~~funds,~~fund, which limited the ability of the partners to transfer or sell their interests without BlackRock’s consent as the general partner of the ~~funds.~~fund. At ~~March 31,~~June 30, 2013, the Company had recorded $4$3 million, ~~$148 million, $10~~$21 million and ~~$142~~$24 million in cash and cash equivalents, investments and other ~~liabilities~~assets and nonredeemable ~~non-controlling~~noncontrolling interests of the consolidated ~~VIEs,~~VIE, respectively, on its condensed consolidated ~~statement~~statements of financial condition related to ~~these VIEs.~~this VIE. Changes in the fair value of the assets and liabilities of ~~these VIEs~~this VIE have no impact on net income attributable to BlackRock. Excluding outstanding management fee receivables, the Company has no risk of loss related to its involvement with ~~these VIEs.~~this VIE.
Fair Value Measurements.    The provisions ofFair Value Measurements and Disclosures (“(“ASC 820-10”) establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and require companies to disclose the fair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Level 3 inputs include the most currently available information, including capital account balances for ~~its~~ partnership interests in various alternative investments, which may be adjusted by using the returns of certain market indices. Certain investments that are valued using net asset values and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3. BlackRock’s ~~$675~~$656 million of Level 3 investments, or ~~39%~~37% of total GAAP investments at ~~March 31,~~June 30, 2013, primarily included co-investments in private equity fund of funds and private equity funds, funds of hedge funds as well as alternative hedge funds that invest in distressed credit and mortgage securities and real estate equity products. Many of these investees are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund, which could include BlackRock employees. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information, including independent appraisals from third-party sources. However, in some instances current valuation information, for illiquid securities or securities in markets that are not active, may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used to value these investments.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. See Note 2,Significant Accounting Policies, in the Company’s condensed consolidated financial statements contained in Part I, Item 1 of this filing for further information regarding fair value measurements.
Performance Fees / Carried Interest.    The Company receives investment advisory performance fees or incentive ~~allocation~~allocations from certain actively managed investment funds and certain separately managed accounts. These performance fees are earned upon exceeding specified relative and/or absolute investment return thresholds. Such fees are recorded upon completion of the measurement period, which varies by product or account, and could be monthly, quarterly, annually or longer. For the ~~quarters~~six months ended ~~March 31,~~June 30, 2013 and 2012, performance fee revenue totaled ~~$108~~$197 million and ~~$80~~$121 million, respectively.
In addition, the Company receives carried interest from certain alternative investments upon exceeding performance thresholds. BlackRock may be required to return all, or part, of such
carried interest depending upon future performance of these funds. ~~Therefore,~~The Company records a deferred carried interest liability to the extent it receives cash or capital allocations related to carried interest prior to meeting the revenue recognition criteria. BlackRock records carried interest subject to such claw-back provisions in investments or cash to the extent that it is distributed, on its condensed consolidated statements of financial condition. Carried interest is realized and recorded as performance fee revenue upon the earlier of the termination of the investment fund or when the likelihood of claw-back is mathematically improbable. The Company records realized carried interest as performance fees on its condensed consolidated statements of income. ~~The Company records a deferred carried interest liability to the extent it receives cash or capital allocations related to carried interest prior to meeting the revenue recognition criteria.~~
At ~~March 31,~~June 30, 2013 and December 31, 2012, the Company had ~~$140~~$143 million and $97 million, respectively, of deferred carried interest recorded in other liabilities on the condensed consolidated statements of financial condition. The ultimate recognition of performance fee revenue, if any, for these products is unknown.
Recent Developments
~~At March 31,~~Tax Legislation in the United Kingdom.    In July 2013, ~~BlackRock held an approximately one-third economic equity interest~~the United Kingdom enacted legislation reducing corporate income taxes. The legislation will result in ~~Private National Mortgage Acceptance Company, LLC (“PennyMac”),~~a revaluation of certain deferred tax assets and liabilities, which ~~is accounted for as an equity method investment.~~
~~On May 8, 2013, PennyMac Financial Services, Inc. became a holding company of PennyMac~~will result in ~~an initial public offering (“PennyMac IPO”). As a result of the PennyMac IPO, BlackRock will adjust the carrying value of its equity method investment in PennyMac and record~~ a non-cash ~~non-operating pre-tax gain of approximately $40 million~~income tax benefit in the ~~second~~third quarter of 2013. At this time, the Company is still evaluating the impact to the condensed consolidated financial statements.
~~During the quarter,~~Acquisitions
MGPA. In May 2013, the Company announced ~~a long-term strategic alliance with Fidelity Investments~~^®that it agreed to ~~deliver direct investors increased access~~acquire MGPA, an independently-managed private equity real estate investment advisory company in Asia-Pacific and Europe. The transaction is expected to~~iShares~~ ~~products, tools~~ close in the third quarter 2013, subject to customary regulatory approvals and ~~support.~~closing conditions.
Credit Suisse ETF. In July 2013, the Company completed the acquisition of Credit Suisse’s ETF franchise. The financial impact of the transaction is not expected to be material to the condensed consolidated financial statements.
Accounting Developments
For accounting pronouncements that the Company adopted during the six months ended June 30, 2013 and for recent accounting pronouncements not yet adopted, see Note 2,Significant Accounting Policies, in the condensed consolidated financial statements contained in Part I, Item 1 of this filing.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
AUM Market Price Risk.    BlackRock’s investment advisory and administration fees are primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. At ~~March 31,~~June 30, 2013, the majority of the Company’s investment advisory and administration fees were based on average or period end AUM of the applicable investment funds or separate accounts. Movements in equity market prices, interest rates/credit spreads, foreign exchange rates or all three could cause the value of AUM to decline, which would result in lower investment advisory and administration fees.
Corporate Investments Portfolio Risks.    As a leading investment management firm, BlackRock devotes significant resources across all of its operations to identifying, measuring, monitoring, managing and analyzing market and operating risks, including the management and oversight of its own investment portfolio. The Board of Directors of the Company has adopted guidelines for the review of investments to be made by the Company, requiring, among other things, that investments be reviewed by certain senior officers of the Company, and that certain investments may be referred to the Audit Committee or the Board of Directors, depending on the circumstances, for approval.
In the normal course of its business, BlackRock is exposed to equity market price risk, interest rate/credit spread risk and foreign exchange rate risk associated with its corporate investments.
~~Corporate Investments Portfolio Risks (continued)~~
BlackRock has investments primarily in sponsored investment products that invest in a variety of asset classes, including real estate, private equity and hedge funds. Investments generally are made for co-investment purposes, to establish a performance track record, to hedge exposure to certain deferred compensation plans or for regulatory purposes. Currently, the Company has a seed capital hedging program in which it enters into ~~total return~~ swaps to hedge market and interest rate exposure to certain investments. At ~~March 31,~~June 30, 2013, the Company had outstanding total return swaps ~~had~~and interest rate swaps with an aggregate notional value of approximately ~~$127 million.~~$80 million and $68 million, respectively.
At ~~March 31,~~June 30, 2013, approximately ~~$564~~$627 million of BlackRock’s total investments were maintained in sponsored investment funds deemed to be controlled by BlackRock in accordance with GAAP and, therefore, are consolidated even though BlackRock may not own a majority of such funds. Excluding the impact of the Federal Reserve Bank stock, carried interest, investments made to hedge exposure to certain deferred compensation plans and certain investments that are hedged via the seed capital hedging program, the Company’s economic exposure to its investment portfolio is ~~as follows:~~$1,284 million. SeeManagement’s Discussion and Analysis- Balance Sheet Overview for further information on the Company’s investments.

    March 31,       December 31,   Variance
(in millions) 2013 2012   Amount     % Change
Total investments, GAAP
$1,711    $1,750    ($39)    (2 %)
Investments held by consolidated sponsored investment funds
(564)    (524)    (40)    (8 %)
Net exposure to consolidated investment funds
                  465                      430                  35            8 %

Total investments, as adjusted
1,612    1,656    (44)    (3 %)
Federal Reserve Bank stock
(90)    (89)    (1)    (1 %)
Carried interest
(127)    (85)    (42)    (49 %)
Deferred compensation investments
(66)    (62)    (4)    (6 %)
Hedged investments
(127)    (209)    82    39 %

Total “economic” investment exposure
$1,202    $1,211    ($9)    (1) %

The “economic” investment exposure of the portfolio is presented in either the equity market price or the interest rate/credit spread risk disclosures below:
Equity Market Price Risk.At ~~March 31,~~June 30, 2013, the Company’s net exposure to equity market price risk in its investment portfolio was approximately ~~$669~~$756 million of the Company’s total economic investment exposure. Investments subject to market price risk include private equity and real estate investments, hedge funds and funds of funds as well as mutual funds. The Company estimates that a hypothetical 10% adverse change in market prices would result in a decrease of approximately ~~$66.9~~$75.6 million in the carrying value of such investments.
Interest Rate/Credit Spread Risk.At ~~March 31,~~June 30, 2013, the Company was exposed to interest-rate risk and credit spread risk as a result of approximately ~~$533~~$528 million of investments in debt securities and sponsored investment products that invest primarily in debt securities.
~~Interest Rate/Credit Spread Risk (continued)~~
Management considered a hypothetical 100 basis point fluctuation in interest rates or credit spreads and estimates that the impact of such a fluctuation on these investments, in the aggregate, would result in a decrease, or increase, of approximately ~~$11.0~~$13.8 million in the carrying value of such investments.
Foreign Exchange Rate Risk.As discussed above, the Company invests in sponsored investment products that invest in a variety of asset classes. The carrying value of the total economic investment exposure denominated in foreign currencies, primarily the pound sterling and euro, was ~~$97~~$124 million at ~~March 31,~~June 30, 2013. A 10% adverse change in the applicable foreign exchange rates would result in approximately a ~~$9.7~~$12.4 million decline in the carrying value of such investments.
Other Market Risks.By using derivative financial instruments, the Company exposes itself to market risk. Market risk from forward foreign currency exchange contracts is the effect on the value of a financial instrument that results from a change in currency exchange rates. The Company manages exposure to market risk associated with foreign currency exchange contracts by establishing and monitoring parameters that limit the types and degrees of market risk that may be undertaken. At ~~March 31,~~June 30, 2013, the Company had outstanding forward foreign currency exchange contracts with an aggregate notional value of approximately ~~$66~~$105 million.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.    Under the direction of BlackRock’s Chief Executive Officer and Chief Financial Officer, BlackRock evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at ~~March 31,~~June 30, 2013. Based on this evaluation, BlackRock’s Chief Executive Officer and Chief Financial Officer have concluded that BlackRock’s disclosure controls and procedures were effective.
Internal Control over Financial Reporting.    There have been no changes in internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2013 that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1.      Legal Proceedings
From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and domestic and international regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation arising in connection with BlackRock’s activities. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which potentially could harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages.
Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of regulatory matters or lawsuits will have a material effect on BlackRock’s results of operations, financial position or cash flows. However, there is no assurance as to whether any such pending or threatened matters will have a material effect on BlackRock’s results of operations, financial position or cash flows in any future reporting period. Due to uncertainties surrounding the outcome of these matters, management cannot reasonably estimate the possible loss or range of loss that may arise from these matters.
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~
During the three months ended ~~March 31,~~June 30, 2013, the Company made the following purchases of its common stock, which is registered pursuant to Section 12(b) of the Exchange Act.

  Total Number
of Shares
Purchased Average Price
  Paid per Share   Total Number of
Shares
Purchased as
Part of Publicly
  Announced Plans
or Programs Maximum
Number of
  Shares that May
Yet Be
Purchased
Under the Plans
or Programs⁽¹⁾
January 1, 2013 through January 31, 2013 880,501 ⁽²⁾ $237.12      -              10,225,400
February 1, 2013 through February 28, 2013 919,233 ⁽²⁾ $240.72      914,045      9,311,355
March 1, 2013 through
March 31, 2013 129,090 ⁽²⁾ $237.72      127,000      9,184,355

Total
        1,928,824            $238.88              1,041,045

  Total Number
of Shares
Purchased Average Price
  Paid per Share   Total Number of
Shares
Purchased as
Part of Publicly
  Announced Plans
or Programs Maximum
Number of
  Shares that May
Yet Be
Purchased
Under the Plans
or Programs⁽¹⁾
April 1, 2013 through April 30, 2013 301,609 ⁽²⁾ $257.49   290,000           8,894,355
May 1, 2013 through May 31, 2013 577,133 ⁽²⁾ $280.57   576,000   8,318,355
June 1, 2013 through June 30, 2013 53,543 ⁽²⁾ $277.28   49,600   8,268,755

Total
        932,285            $272.91           915,600

⁽¹⁾⁽¹⁾
In January 2013, the Board of Directors approved an increase in the availability under the Company’s existing share repurchase program to allow for the repurchase of up to 10.2 million shares of BlackRock common stock with no stated expiration date.
⁽⁽²⁾²⁾
Includes purchases made by the Company primarily to satisfy income tax withholding obligations of employees and members of the Company’s Board of Directors related to the vesting of certain restricted stock or restricted stock unit awards and purchases made by the Company as part of the publicly announced share repurchase program.
Item 6.    Exhibits

Exhibit No.

Description
~~10.1(1)~~ Amendment No. 2, dated as of March 28, 2013, by and among BlackRock, Inc., certain of its subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent and a lender, and the banks and other financial institutions referred to therein.
~~10.2(2)~~ ~~Letter Agreement, dated February 12, 2013, between Gary S. Shedlin and BlackRock, Inc.+~~
12.1    Computation of Ratio of Earnings to Fixed Charges
31.1    Section 302 Certification of Chief Executive Officer
31.2    Section 302 Certification of Chief Financial Officer
32.1    Section 906 Certification of Chief Executive Officer and Chief Financial Officer
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
~~(1)~~ ~~Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 3, 2013.~~
~~(2)~~ ~~Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 19, 2013.~~
+ ~~Denotes compensatory plans or arrangements.~~
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BLACKROCK, INC.
(Registrant)
By:    /s/ ~~Ann Marie Petach~~Gary Shedlin
Date: ~~May 9,~~August 8, 2013
~~Ann Marie Petach~~Gary S. Shedlin

Senior Managing Director &
Chief Financial Officer

EXHIBIT INDEX

Exhibit No.

Description
~~10.1(1)~~ Amendment No. 2, dated as of March 28, 2013, by and among BlackRock, Inc., certain of its subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent and a lender, and the banks and other financial institutions referred to therein.
~~10.2(2)~~ ~~Letter Agreement, dated February 12, 2013, between Gary S. Shedlin and BlackRock, Inc.+~~
12.1    Computation of Ratio of Earnings to Fixed Charges
31.1    Section 302 Certification of Chief Executive Officer
31.2    Section 302 Certification of Chief Financial Officer
32.1    Section 906 Certification of Chief Executive Officer and Chief Financial Officer
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE            XBRL Taxonomy Extension Presentation Linkbase Document
~~(1)~~ ~~Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 3, 2013.~~
~~(2)~~ ~~Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 19, 2013.~~
+ ~~Denotes compensatory plans or arrangements.~~


(in millions)	March 31, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Available-for-sale investments		$178		$158		$150		$158
Held-to-maturity investments		53		112		53		112
Trading investments:
Consolidated sponsored investment funds		151		123		289		123
Other equity securities and debt securities		98		94
Other equity and debt securities						79		94
Deferred compensation plan mutual funds		56		53		57		53

Total trading investments		305		270		425		270
Other investments:
Consolidated sponsored investment funds		413		401		338		401
Equity method investments		505		595		545		595
Deferred compensation plan hedge fund equity method investments		10		9		10		9
Cost method investments⁽¹⁾		120		120		122		120
Carried interest		127		85		130		85

Total other investments		1,175		1,210		1,145		1,210

Total investments		$1,711		$1,750		$1,773		$1,750


(in millions)
			Gross Unrealized				Carrying Value				Gross Unrealized				Carrying Value
March 31, 2013	Cost		Gains		Losses		Carrying Value								Carrying Value
June 30, 2013									Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		td62		td4		(td)		td75		td48		$3		($4)	Carrying Value
Other securities		1		2		-		3		2		1		-		3

Total available-for-sale investments		$163		$16		($1)		$178		$150		$4		($4)		$150


			Gross Unrealized				Carrying Value				Gross Unrealized				Carrying Value
December 31, 2012	Cost		Gains		Losses		Carrying Value		Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		$142		$14		($1)		$155		$142		$14		($1)		$155
Other securities		2		1		-		3		2		1		-		3

Total available-for-sale investments		$144		$15		($1)		$158		$144		$15		($1)		$158


	Assets measured at fair value on a recurring basis										Assets measured at fair value on a recurring basis
(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value⁽¹⁾		March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value⁽¹⁾		June 30, 2013

Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)		$175		$-		$1		$-		$176		$147		$-		$1		$-		$148
Debt securities		-		2		-		-		2		-		2		-		-		2

Total available-for-sale		175		2		1		-		178		147		2		1		-		150
Held-to-maturity:
Debt securities		-		-		-		53		53		-		-		-		53		53
Trading:
Deferred compensation plan mutual funds		56		-		-		-		56		57		-		-		-		57
Equity/Multi-asset class mutual funds		139		3		-		-		142
Equity/Multi-asset mutual funds												97		3		-		-		100
Debt securities / fixed income mutual funds		37		70		-		-		107		58		210		-		-		268

Total trading		232		73		-		-		305		212		213		-		-		425
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		3		39		84		-		126		3		24		47		-		74
Private / public equity⁽²⁾		7		16		264		-		287		2		13		249		-		264

Total consolidated sponsored investment funds		10		55		348		-		413		5		37		296		-		338
Equity method:
Hedge funds / Funds of hedge funds		-		65		136		53		254		-		68		157		52		277
Private equity investments		-		-		99		-		99		-		-		105		-		105
Real estate funds		-		19		91		9		119		-		19		97		7		123
Equity/Multi-asset class, alternative mutual funds		33		-		-		-		33
Fixed income mutual funds												34		-		-		-		34
Equity/Multi-asset, alternative mutual funds												6		-		-		-		6

Total equity method		33		84		326		62		505		40		87		359		59		545
Deferred compensation plan hedge fund equity method investments		-		10		-		-		10		-		10		-		-		10
Cost method investments		-		-		-		120		120		-		-		-		122		122
Carried interest		-		-		-		127		127		-		-		-		130		130

Total investments		450		224		675		362		1,711		404		349		656		364		1,773

Separate account assets		97,815		38,536		-		951		137,302		95,377		36,635		-		834		132,846
Separate account collateral held under securities lending agreements:
Equity securities		19,275		-		-		-		19,275		17,880		-		-		-		17,880
Debt securities		-		1,664		-		-		1,664		-		1,546		-		-		1,546

Total separate account collateral held under securities lending agreements		19,275		1,664		-		-		20,939		17,880		1,546		-		-		19,426
Other assets⁽³⁾		-		12		-		-		12		-		12		-		-		12
Assets of consolidated VIEs:
Assets of consolidated VIEs:
Bank loans		-		2,125		97		-		2,222		-		1,910		93		-		2,003
Bonds		-		90		49		-		139		-		60		35		-		95
Private / public equity⁽⁴⁾		-		7		20		-		27		-		7		19		-		26
Fund of hedge funds		10		-		116				126

Total assets of consolidated VIEs		10		2,222		282		-		2,514		-		1,977		147		-		2,124

Total		$117,550		$42,658		$957		$1,313		$162,478		$113,661		$40,519		$803		$1,198		$156,181


(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		June 30, 2013
Liabilities:
Borrowings of consolidated VIEs		$-		$-		$2,332		$2,332		$ -		$ -		$2,145		$ 2,145
Separate account collateral liabilities under securities lending agreements		19,275		1,664		-		20,939		17,880		1,546		-		19,426
Other liabilities⁽¹⁾		15		5		-		20		16		5		-		21

Total liabilities measured at fair value		$19,290		$1,669		$2,332		$23,291		$17,896		$1,551		$2,145		$21,592


(in millions)	December 31, 2012		Realized and unrealized gains (losses) in earnings and OCI		Purchases		Sales and maturities		Issuances and other settlements⁽¹⁾		Transfers into Level 3		Transfers out of Level 3		March 31, 2013		Total net unrealized gains (losses) included in earnings⁽²⁾			March 31, 2013		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			June 30, 2013		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-		$-		$-		$-		$-		$-		$1		$-			$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		73		4		12		-		-		-		(5)		84		4			84		2			-		(9	)		(28	)		-		(2	)		47		2
Private equity		266		23		7		(29)		-		-		(3)		264		20			264		(7	)		5		(10	)		-			-		(3	)		249		(6	)
Equity method:
Hedge funds / Funds of hedge funds		161		4		1		-		(30)		-		-		136		4			136		5			-		-			16			-		-			157		5
Private equity investments		90		6		5		-		(2)		-		-		99		6			99		4			4		-			(2	)		-		-			105		4
Real estate funds		88		1		2		-		-		-		-		91		2			91		7			1		-			(2	)		-		-			97		6

Total Level 3 investments		679		38		27		(29)		(32)		-		(8)		675		36			675		11			10		(19	)		(16	)		-		(5	)		656		11

Separate account assets		2		-		-		(2)		-		-		-		-		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		106		-		24		(11)		-		15		(37)		97					97		(1	)		48		(29	)		-			17		(39	)		93
Bonds		46		(1)		4		-		-		-		-		49					49		-			-		(14	)		-			-		-			35
Private equity		22		1		-		(3)		-		-		-		20					20		-			-		(1	)		-			-		-			19
Fund of hedge funds		-		-		116		-		-		-		-		116					116		-			18		-			(134	)		-		-			-

Total Level 3 assets of consolidated VIEs		174		-		144		(14)		-		15		(37)		282		n/a	⁽⁴⁾		282		(1	)		66		(44	)		(134	)		17		(39	)		147		n/a	⁽³⁾

Total Level 3 assets		$855		$38		$171		($45)		($32)		$15		($45)		$957					$957		$10			$76		($63	)		($150	)		$17		($44	)		$803

Liabilities:
Borrowings of consolidated VIEs		$2,402		($10)		$-		$-		($80)		$-		$-		$2,332		n/a	⁽⁴⁾		$2,332		$6			$-		$-			($181	)		$-		$-			$2,145		n/a	⁽³⁾


(in millions)	December 31, 2011		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			March 31, 2012		Total net unrealized gains (losses) included in earnings⁽²⁾			March 31, 2012		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			June 30, 2012		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-			$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of hedge funds		22		1			27		-			-			3		-			53		1
Hedge funds / Funds of funds																									53		(5	)		-		-			(2	)		-		-			46		(5	)
Private equity		313		29			5		(18	)		-			-		-			329		27			329		(8	)		4		(21	)		-			-		(6	)		298		(9	)
Equity method:
Hedge funds / Funds of hedge funds		193		16			-		-			(12	)		-		-			197		16			197		3			-		-			(13	)		-		-			187		3
Private equity investments		85		4			2		-			(2	)		-		-			89		4			89		2			1		-			(4	)		-		-			88		2
Real estate funds		88		-			7		-			-			-		-			95		-			95		2			6		-			(2	)		-		-			101		2

Total Level 3 investments		702		50			41		(18	)		(14	)		3		-			764		48			764		(6	)		11		(21	)		(21	)		-		(6	)		721		(7	)

Separate account assets		10		1			1		(9	)		-			11		(1	)		13		n/a	⁽³⁾		13		(2	)		3		(2	)		-			3		(8	)		7		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		83		-			7		(6	)		-			5		(42	)		47					47		1			10		(1	)		-			47		(19	)		85
Bonds		40		2			2		-			-			-		-			44					44		-			-		-			-			-		-			44
Private equity		27		3			-		(2	)		-			-		-			28					28		(1	)		-		(2	)		-			-		-			25

Total Level 3 assets of consolidated VIEs		150		5			9		(8	)		-			5		(42	)		119		n/a	⁽⁴⁾		119		-			10		(3	)		-			47		(19	)		154		n/a	⁽⁴⁾

Total Level 3 assets		$862		$56			$51		($35	)		($14	)		$19		($43	)		$896					$896		($8	)		$24		($26	)		($21	)		$50		($33	)		$882

Liabilities:
Borrowings of consolidated VIEs		$1,574		($49	)		$-		$-			($76	)		$-		$-			$1,547		n/a	⁽⁴⁾		$1,547		$10			$-		$-			($98	)		$-		$-			$1,439		n/a	⁽⁴⁾


(in millions)	Ref			Fair Value		Total Unfunded Commitments		Redemption Frequency	Redemption Notice Period	Ref			Fair Value		Total Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Trading:
Trading:
Equity		(a	)	$	3	$	-	Daily (100%)	None		(a	)		$3		$-	Daily (100%)	None
Consolidated sponsored investment funds:
Consolidated sponsored investment funds:
Private equity funds of funds		(b	)		212		32	n/r	n/r		(b	)		212		32	n/r	n/r
Other funds of hedge funds		(c	)		98		-	Monthly (22%) Quarterly (11%) n/r (67%)	1 – 90 days		(c	)		98		-	Monthly (22%) Quarterly (11%) n/r (67%)	1 – 90 days
Equity method:⁽¹⁾
Equity method:⁽¹⁾
Hedge funds/funds of hedge funds		(d	)		222		42	Monthly (2%) Quarterly (28%) n/r (70%)	15 – 90 days		(d	)		222		42	Monthly (2%) Quarterly (28%) n/r (70%)	15 – 90 days

Private equity funds		(e	)		90		135	n/r	n/r		(e	)		90		135	n/r	n/r
Real estate funds		(f	)		107		15	Quarterly (18%) n/r (82%)	60 days		(f	)		107		15	Quarterly (18%) n/r (82%)	60 days

Deferred compensation plan hedge fund investments		(g	)		9		-	Monthly (33%) Quarterly (67%)	60 – 90 days		(g	)		9		-	Monthly (33%) Quarterly (67%)	60 – 90 days

Consolidated VIE:
Consolidated VIE:
Private equity funds		(h	)		20		1	n/r	n/r		(h	)		20		1	n/r	n/r

Total				$	761	$	225							$ 761		$ 225


(in millions)	Variable Interests on the Condensed Consolidated Statement of Financial Condition
*At March 31, 2013*	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)		Maximum Risk of Loss⁽¹⁾
CDOs/CLOs	$	1	$	2		($5)	$	20
Other sponsored investment funds:
Collective trusts		—		206		—		206
Other		18		78		—		96

Total	$	19	$	286		($5)	$	322

*At December 31, 2012*
CDOs/CLOs	$	1	$	1		($5)	$	19
Other sponsored investment funds:
Collective trusts		—		248		—		248
Other		17		61		(3)		77

Total	$	18	$	310		($8)	$	344


(in millions)	Variable Interests on the Condensed Consolidated Statement of Financial Condition
*At June 30, 2013*	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)			Maximum Risk of Loss⁽¹⁾
CDOs/CLOs	$	1	$	1		($5	)	$	19
Other sponsored investment funds:
Collective trusts		—		169		—			169
Other		18		98		(6	)		116

Total	$	19	$	268		($11	)	$	304

*At December 31, 2012*
CDOs/CLOs	$	1	$	1		($5	)	$	19
Other sponsored investment funds:
Collective trusts		—		248		—			248
Other		17		61		(3	)		77

Total	$	18	$	310		($8	)	$	344


(in billions)	March 31, 2013		December 31, 2012
Assets at fair value		$4		$4
Liabilities⁽¹⁾		5		5

Net assets		($1)		($1)


(in millions)
December 31, 2012			$12,910
Goodwill adjustment related to Quellos and other⁽¹⁾			~~(6)~~(11)

~~March 31,~~June 30, 2013			$~~12,904~~12,899


(in millions)	Indefinite-lived intangible assets		Finite-lived intangible assets		Total intangible assets		Indefinite-lived intangible assets		Finite-lived intangible assets		Total intangible assets
December 31, 2012		$16,760		$642		$17,402		$16,760		$642		$17,402
Amortization expense		—		(40)		(40)		—		(80)		(80)

March 31, 2013		$16,760		$602		$17,362
June 30, 2013								$16,760		$562		$17,322


(in millions)	Maturity Amount		Unamortized Discount		Carrying Value		Fair Value		Maturity Amount		Unamortized Discount		Carrying Value		Fair Value

Floating Rate Notes due 2013		$750		$ —		$750		$750
3.50% Notes due 2014		1,000		—		1,000		1,051		$1,000		$ —		$1,000		$1,037
1.375% Notes due 2015		750		—		750		764		750		—		750		760
6.25% Notes due 2017		700		(3)		697		852		700		(2)		698		824
5.00% Notes due 2019		1,000		(2)		998		1,180		1,000		(2)		998		1,139
4.25% Notes due 2021		750		(4)		746		843		750		(4)		746		797
3.375% Notes due 2022		750		(4)		746		794		750		(4)		746		751

Total Long-term Borrowings		$ 5,700		($13)		$ 5,687		$ 6,234		$ 4,950		($12)		$ 4,938		$ 5,308


Outstanding at	Restricted Stock and RSUs		Weighted- Average Grant Date Fair Value		Restricted Stock and RSUs		Weighted- Average Grant Date Fair Value
December 31, 2012		5,620,835		$197.90		5,620,835		$197.90
Granted		1,559,324		$232.47		1,629,460		$234.22
Converted		(2,313,218)		$205.19		(2,356,276)		$205.10
Forfeited		(14,258)		$196.79		(44,528)		$201.92

March 31, 2013⁽¹⁾		4,852,683		$205.53
June 30, 2013⁽¹⁾						4,849,491		$206.56


Outstanding at	Market Performance- Based RSUs		Weighted- Average Grant Date Fair Value		Market Performance- Based RSUs		Weighted- Average Grant Date Fair Value
December 31, 2012		575,532	$	115.03		575,532	$	115.03
Granted		556,581	$	126.76		556,581	$	126.76

March 31, 2013⁽¹⁾		1,132,113	$	120.80
June 30, 2013⁽¹⁾						1,132,113	$	120.80


Outstanding at	Shares Under Option		Weighted- Average Exercise Price		Shares Under Option		Weighted- Average Exercise Price
December 31, 2012		1,099,909	$	167.76		1,099,909	$	167.76
Exercised		(21,032)	$	167.76		(85,090)	$	167.76

March 31, 2013⁽¹⁾		1,078,877	$	167.76
June 30, 2013						1,014,819	$	167.76


(in millions)	Unrealized gains and (losses) on available-for-sale investments			Benefit plans			Foreign currency translation adjustments			Total ⁽¹⁾			Unrealized gains (losses) on available-for-sale investments			Benefit plans			Foreign currency translation adjustments			Total ⁽¹⁾
December 31, 2012		$16			($4	)		($71)			($59	)
March 31, 2013														$17			($4	)		($179	)		($166	)
Other comprehensive income (loss) before reclassifications(2)		4			-			(108	)		(104	)		(21	)		-			(23	)		(44	)
Amount reclassified from AOCI⁽²⁾⁽³⁾		(3	)		-			-			(3	)		12			-			-			12

Net other comprehensive income (loss) for the three months ended March 31, 2013		1			-			(108	)		(107	)
Net other comprehensive income (loss) for the three months ended June 30, 2013														(9	)		-			(23	)		(32	)

March 31, 2013		$17			($4	)		($179	)		($166	)
June 30, 2013														$8			($4	)		($202	)		($198	)


~~(in millions, except per share data)~~	~~Three Months~~ ~~Ended~~ ~~March 31,~~ ~~2013~~
~~Net income attributable to BlackRock~~		~~$632~~

~~Basic weighted-average shares outstanding~~		~~171,301,800~~
~~Dilutive effect of:~~
~~Non-participating RSUs and stock options~~		~~3,259,332~~

~~Total diluted weighted-average shares~~ ~~outstanding~~		~~174,561,132~~


~~Basic earnings per share~~		~~$3.69~~
~~Diluted earnings per share~~		~~$3.62~~


(in millions, except per share data)	Three Months Ended June 30, 2013		Six Months Ended June 30, 2013
Net income attributable to BlackRock		$729		$1,361

Basic weighted-average shares outstanding		170,648,731		170,973,462
Dilutive effect of:
Non-participating RSUs and stock options		3,224,852		3,295,408

Total diluted weighted-average shares outstanding		173,873,583		174,268,870


Basic earnings per share		$4.27		$7.96
Diluted earnings per share		$4.19		$7.81


Operating income, as adjusted and operating margin, as adjusted

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2013		2012		2013		2012
Operating income, GAAP basis		$849		$829		$1,758		$1,644
Non-GAAP expense adjustments:
Charitable Contribution		124		-		124		-
PNC LTIP funding obligation		9		6		17		11
Compensation expense related to appreciation (depreciation) on deferred compensation plans		-		(3)		4		2

Operating income, as adjusted		982		832		1,903		1,657
Closed-end fund launch costs		-		-		16		-
Closed-end fund launch commissions		-		-		2		-

Operating income used for operating margin measurement		$982		$832		$1,921		$1,657

Revenue, GAAP basis		$2,482		$2,229		$4,931		$4,478
Non-GAAP adjustments:
Distribution and servicing costs		(90)		(93)		(181)		(188)
Amortization of deferred sales commissions		(12)		(14)		(24)		(30)

Revenue used for operating margin measurement		$2,380		$2,122		$4,726		$4,260

Operating margin, GAAP basis		34.2%		37.2%		35.7%		36.7%

Operating margin, as adjusted		41.3%		39.2%		40.6%		38.9%


							Variance vs.
(in millions)	March 31, 2013		December 31, 2012		March 31, 2012		December 31, 2012		March 31, 2012
Equity:
Active		$291,759		$287,215		$297,184		2%		(2%)
iShares		588,694		534,648		479,585		10%		23%
Fixed income:
Active		648,865		656,331		624,723		(1%)		4%
iShares		189,501		192,852		168,365		(2%)		13%
Multi-asset class		283,566		267,748		246,507		6%		15%
Alternatives:
Core		69,943		68,367		65,788		2%		6%
Currency and commodities⁽¹⁾		37,618		41,428		44,656		(9%)		(16%)

Sub-total		2,109,946		2,048,589		1,926,808		3%		10%
Non-ETF Index
Equity		1,112,142		1,023,638		966,950		9%		15%
Fixed Income		407,167		410,139		450,749		(1%)		(10%)

Sub-total Non-ETF Index		1,519,309		1,433,777		1,417,699		6%		7%

Long-term		3,629,255		3,482,366		3,344,507		4%		9%
Cash management		261,329		263,743		241,929		(1%)		8%

Sub-total		3,890,584		3,746,109		3,586,436		4%		8%
Advisory⁽²⁾		45,825		45,479		97,651		1%		(53%)

Total		$3,936,409		$3,791,588		$3,684,087		4%		7%


	AUM						Net Subscriptions (Redemptions)⁽¹⁾
(in millions)	June 30, 2013		March 31, 2013		June 30, 2012		Three Months Ended June 30, 2013			Six Months Ended June 30, 2013			Twelve Months Ended June 30, 2013⁽²⁾
Retail	$	414,379	$	421,141	$	374,008	$	5,076		$	13,871		$	22,616
iShares		774,397		802,776		644,908		(963	)		24,631			85,510
Institutional:
Active		861,231		878,741		849,994		1,317			(8,983	)		(24,372	)
Index		1,514,448		1,526,597		1,386,508		6,477			21,833			(28,280	)

Total institutional		2,375,679		2,405,338		2,236,502		7,794			12,850			(52,652	)

Total long-term		3,564,455		3,629,255		3,255,418		11,907			51,352			55,474

Cash management		252,562		261,329		239,471		(8,829	)		(8,663	)		12,821
Advisory⁽³⁾		39,990		45,825		65,045		(4,891	)		(4,002	)		(24,030	)

Total	$	3,857,007	$	3,936,409	$	3,559,934		($1,813	)	$	38,687		$	44,265


(in millions)	December 31, 2012		Net subscriptions (redemptions)⁽¹⁾			Market appreciation (depreciation)			Foreign exchange⁽²⁾			March 31, 2013
Equity:
Active	$	287,215		($6,873	)	$	16,732			($5,315	)	$	291,759
iShares		534,648		26,280			29,874			(2,108	)		588,694
Fixed income:
Active		656,331		(2,380	)		1,782			(6,868	)		648,865
iShares		192,852		(1,016	)		(962	)		(1,373	)		189,501
Multi-asset class		267,748		9,029			11,125			(4,336	)		283,566
Alternatives:
Core		68,367		1,511			797			(732	)		69,943
Currency and commodities⁽³⁾		41,428		(2,187	)		(903	)		(720	)		37,618

Subtotal		2,048,589		24,364			58,445			(21,452	)		2,109,946
Non-ETF Index
Equity		1,023,638		14,267			91,162			(16,925	)		1,112,142
Fixed Income		410,139		816			10,457			(14,245	)		407,167

Sub-total Non-ETF Index		1,433,777		15,083			101,619			(31,170	)		1,519,309

Long-term		3,482,366		39,447			160,064			(52,622	)		3,629,255
Cash management		263,743		166			101			(2,681	)		261,329

Sub-total		3,746,109		39,613			160,165			(55,303	)		3,890,584
Advisory⁽⁴⁾		45,479		889			(61	)		(482	)		45,825

Total	$	3,791,588	$	40,502		$	160,104			($55,785	)	$	3,936,409


									Three Months Ended June 30,								Six Months Ended June 30,
	Mix of Base Fees Three Months Ended March 31,				Mix of Average AUM by Asset Class⁽¹⁾ March 31,				Mix of Base Fees				Mix of Average AUM by Asset Class⁽¹⁾				Mix of Base Fees				Mix of Average AUM by Asset Class⁽²⁾
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013		2012
Equity:
Active		20%		22%		7%		8%		20%		22%		7%		8%		20%		22%		7%		8%
iShares		27%		24%		15%		13%		26%		23%		15%		13%		27%		24%		15%		13%
Fixed income:
Active		15%		14%		17%		18%		15%		14%		17%		18%		15%		14%		17%		18%
iShares		5%		5%		5%		5%		6%		5%		5%		5%		5%		5%		5%		5%
Multi-asset class		12%		12%		7%		7%
Multi-asset										12%		12%		7%		7%		12%		12%		7%		7%
Alternatives:
Core		6%		7%		2%		2%		6%		7%		2%		2%		6%		7%		2%		2%
Currency and commodities		1%		2%		1%		1%		1%		2%		1%		1%		1%		2%		1%		1%

Sub-total		86%		86%		54%		54%		86%		85%		54%		54%		86%		86%		54%		54%
Non-ETF Index:
Equity		7%		6%		28%		26%		7%		8%		29%		26%		7%		7%		29%		26%
Fixed income		3%		3%		11%		13%		3%		3%		10%		13%		3%		3%		10%		13%

Sub-total Non-ETF Index:		10%		9%		39%		39%		10%		11%		39%		39%		10%		10%		39%		39%

Long-term		96%		95%		93%		93%		96%		96%		93%		93%		96%		96%		93%		93%
Cash management		4%		5%		7%		7%		4%		4%		7%		7%		4%		4%		7%		7%

Total excluding Advisory AUM		100%		100%		100%		100%		100%		100%		100%		100%		100%		100%		100%		100%


	Three Months Ended March 31,
								Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2013		2012			Variance		2013		2012		2013		2012

Non-operating income (expense), GAAP basis	$	41	$	23			$ 18		$69		($40)		$110		($17)
Less: Net income (loss) attributable to NCI⁽¹⁾		34		3			31		(23)		6		11		9

Non-operating income (expense)⁽²⁾		7		20			(13)		92		(46)		99		(26)
Gain related to the Charitable Contribution									(80)		-		(80)		-
Compensation expense related to (appreciation) depreciation on deferred compensation plans		(4)		(5	)		1		-		3		(4)		(2)

Non-operating income (expense), as adjusted⁽²⁾	$	3	$	15			($12)		$12		($43)		$15		($28)


									GAAP								As Adjusted
(in millions)	GAAP Three Months Ended March 31,				As adjusted Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012		2013		2012		2013		2012		2013		2012		2013		2012
Income before income taxes⁽¹⁾		$916		$835		$924		$840		$941		$783		$1,857		$1,618		$994		$789		$1,918		$1,629

Income tax expense		$284		$263		$287		$265		$212		$229		$496		$492		$272		$231		$559		$496

Effective tax rate		31.0%		31.5%		31.0%		31.5%		22.5%		29.3%		26.7%		30.4%		27.3%		29.3%		29.1%		30.4%


	March 31, 2013
			Segregated client assets generating advisory fees in which BlackRock has no economic interest or liability
(in millions)	GAAP Basis		Separate Account Assets/ Collateral		Consolidated VIEs		Consolidated Sponsored Investment Funds		As Adjusted
Assets
Cash and cash equivalents	$	3,942	$	—	$	—	$	117	$	3,825
Accounts receivable		2,618		—		—		—		2,618
Investments		1,711		—		—		99		1,612
Assets of consolidated VIEs		2,804		—		2,804		—		—
Separate account assets and separate account collateral held under securities lending agreements		158,241		158,241		—		—		—
Other assets⁽¹⁾		1,156		—		—		15		1,141

Sub-total		170,472		158,241		2,804		231		9,196
Goodwill and intangible assets, net		30,266		—		—		—		30,266

Total assets	$	200,738	$	158,241	$	2,804	$	231	$	39,462

Liabilities
Accrued compensation and benefits	$	602	$	—	$	—	$	—	$	602
Accounts payable and accrued liabilities		1,657		—		—		—		1,657
Liabilities of consolidated VIEs		2,607		—		2,607		—		—
Long-term borrowings		5,687		—		—		—		5,687
Separate account liabilities and separate account collateral liabilities under securities lending agreements		158,241		158,241		—		—		—
Deferred income tax liabilities		5,379		—		—		—		5,379
Other liabilities		898		—		—		51		847

Total liabilities		175,071		158,241		2,607		51		14,172

Equity
Total stockholders’ equity⁽²⁾		25,345		—		55		—		25,290
Non-controlling interests		322		—		142		180		—

Total equity		25,667		—		197		180		25,290

Total liabilities and equity	$	200,738	$	158,241	$	2,804	$	231	$	39,462


(in millions)
Investments as adjusted, December 31, 2012	$	1,656
Purchases/capital contributions		389
Sales/maturities		~~(205)~~(336)
Distributions⁽¹⁾		~~(54)~~
~~Purchases/capital contributions~~		~~125~~(81)
Market valuations/earnings from equity method investments		48
Carried interest capital allocations		4245

Investments as adjusted, ~~March 31,~~June 30, 2013	$	~~1,612~~1,721


(in millions)	GAAP Basis		Impact on Cash Flows of Consolidated Sponsored Investment Funds		Impact on Cash Flows of Consolidated VIEs		Cash Flows Excluding Impact of Consolidated Sponsored Investment Funds and VIEs
Cash and cash equivalents, December 31, 2012	$	4,606	$	133	$	—	$	4,473
Cash flows from operating activities		190		5		(34)		219
Cash flows from investing activities		31		(14)		—		45
Cash flows from financing activities		(805)		(7)		34		(832)
Effect of exchange rate changes on cash and cash equivalents		(80)		—		—		(80)

Net change in cash and cash equivalents		(664)		(16)		—		(648)

Cash and cash equivalents, March 31, 2013	$	3,942	$	117	$	—	$	3,825


(in millions)
Year	Principal		Interest⁽¹⁾		Total Payments		Principal		Interest		Total Payments
2013		$ 750		$ 176		$ 926
July-December 2013⁽¹⁾								$ -		$ 98		$ 98
2014		1,000		196		1,196		1,000		196		1,196
2015		750		156		906		750		156		906
2016		-		151		151		-		151		151
2017		700		151		851		700		151		851
2018		-		107		107		-		107		107
Thereafter		2,500		235		2,735		2,500		235		2,735

Total		$5,700		$1,172		$6,872		$4,950		$1,094		$6,044